MANILA, Philippines — Bank lending continued to expand at the end of 2022, but an analyst expects credit growth to soften in the coming months as interest rate hikes begin to seep into the domestic economy.
Excluding lending among each other, outstanding loans of universal and commercial banks grew 13.4% year-on-year in December, slightly lower than the 13.7% expansion recorded in November, the Bangko Sentral ng Pilipinas reported Tuesday.
Data showed this was the 17th straight month of loan growth despite the BSP’s aggressive rate hikes meant to temper consumer demand fueling painfully-high inflation. Month-on-month, credit retreated 0.04%.
At the same time, more money circulated in the domestic economy during the month. A separate BSP report also released on Tuesday showed M3, the broadest measure of money supply, ballooned 6.4% year-on-year in November to P16.3 trillion.
Sought for comment, Nicholas Antonio Mapa, senior economist at ING Bank in Manila, expects credit growth to face some hurdles in 2023.
“In the coming months, we can expect bank lending, especially for lending to 'productive sectors' slow further as rate hikes bite. Meanwhile, bank lending will like slow also as consumer credit loans via credit cards may also be impacted by the BSP’s decision to increase the rate cap on credit cards to 3%,” he said in an emailed commentary.
Interest rate adjustments typically take 12 to 18 months before the domestic economy feels the effects. This was the case in 2021, which saw bank lending snap a losing streak once BSP slashed interest rates to 2% in November 2020.
“This is the byproduct of raising rates to quell inflation: slowing lending to productive sectors and eventually slower growth,” Mapa added.
Data broken down showed loans to businesses jumped 12.1% on-year in December, despite inching down from 12.6% growth in the previous month. Double-digit increases in credit growth were seen in real estate activities, manufacturing, electricity, gas, steam and airconditioning supply, wholesale and retail trade, repair of motor vehicles and motorcycles, and information and communication.
Consumer loans quickened 24.8% on an annual basis, faster than the 24.2% in the preceding month to account for uptick in motor vehicle loans.
Mapa noted that slower credit growth eventually contributes to the slower uptick of inflation, crimping growth momentum.
“With BSP expected to hike further in 1H, bank lending will likely moderate further,” he said.