Credit growth may slow further

MANILA, Philippines — Bank lending is expected to further slowdown in the coming months, with companies opting to pursue modest expansion plans due to higher borrowing cost, according to an economist.

Domini Velasquez, chief economist at China Banking Corp., said that the slower bank lending is likely a result of the lagged effects of higher interest rates.

The Bangko Sentral ng Pilipinas (BSP) has so far raised key policy rates by 400 basis points since raising interest rates in May last year to tame inflation and stabilize the peso that slumped to an all-time low of 59 to $1 last October.

Velasquez explained that the effects of the tightening cycle are now being felt or nine months since it started.

“As the lagged effects of tight monetary policy continue to be felt, we expect bank lending to continue its slowdown. Expansion plans for companies may remain modest until we see lower borrowing costs,” Velasquez said.

Latest data from the BSP showed credit growth tumbled for the second straight month to 10.4 percent in January from 13.7 percent in December. This was the slowest in nine months or since the 10.1 percent increase recorded in April last year.

“Although the slowdown is evident, January figure remains respectable. Across productive activities, marked deterioration is evident in categories where we expect a slowdown this year, e.g., construction and real estate,” Velasquez said.

For January, data showed loans to production activities increased at a slower rate of 9.2 percent to P9.37 trillion in January from P8.57 trillion in the same month last year and accounted for 87.5 percent of the total disbursements.

The increase in disbursements to the real estate sector slowed sharply to 3.5 percent, with P2.12 trillion that accounted for 19.9 percent of the total, followed by the wholesale and retail trade, repair of motor vehicles and motorcycles with a slower increase of 10.4 percent to P1.22 trillion for an 11.4 percent share.

The growth in releases to the manufacturing sector also slowed to 10.3 percent with P1.19 trillion, followed by the loans extended to the electricity, gas, steam and air-conditioning supply sector, which also eased to 12.7 percent with P1.18 trillion.

The growth in consumer loans also slowed to 20.3 percent with P1.03 trillion in January.

It was led by credit card loans that jumped by 30.7 percent to P560.38 billion in January from P428.8 billion in the same month last year.

Car loans contracted by 4.4 percent to P324.24 billion from P339.25 billion, but this was offset by the 67 percent jump in salary-based general purpose consumption loans to P120.82 billion and the 57 percent surge in other loans to P22.15 billion.

“In consumer loans, motor vehicle loans reverted to negative territory as interest rate on auto loans also increased. Although currently auto sales remain robust, CAMPI only projects 10 to 15 percent growth for the industry after a 31 percent sales growth in 2022,” Velasquez said.

S&P Global Ratings also expects the BSP’s tightening cycle to translate to a slower credit growth of between five and seven percent this year.