Banks ramp up consumer lending on strong demand

MANILA, Philippines — Banks expanded consumer lending at a rapid pace in the first half, supported by lower borrowing costs and stronger household demand, according to the Bangko Sentral ng Pilipinas.

Still, the BSP said the banking sector maintained firm loan quality even as unsecured credit grew at double-digit rates.

In its semestral report on the Philippine financial system, the central bank said consumer loans jumped by 21.2 percent to P3.4 trillion in June. It surpassed the 19.7 percent growth in June 2024 and comprised 21.4 percent of total loans.

“Growth in consumer lending reached record levels, fueled by strong borrower demand, favorable financing terms and improved consumer sentiment,” the BSP said.

“Credit growth is expected to remain robust backed by the central bank’s monetary policy easing and favorable economic conditions,” it added.

The expansion in consumer lending was driven by double-digit growth in credit card receivables, salary-based general-purpose loans, motor vehicle loans as well as residential real estate loans.

Credit card receivables and real estate loans remained the largest segments, accounting for 33.9 percent and 30.5 percent of total consumer loans, respectively.

“With a positive consumer finance outlook and improving household incomes, the upward trend in consumer credit is expected to continue,” the BSP said.

Despite the sharp rise in unsecured lending, loan quality remained broadly steady. The non-performing loan (NPL) ratio eased to 3.3 percent in June from 3.5 percent a year earlier. In terms of value, soured loans inched up by 5.5 percent to P530.2 billion.

“Easing inflation and lower borrowing costs helped reduce debt-servicing pressures, contributing to the moderation of NPL growth. Nonetheless, certain borrower segments and industries remain vulnerable, requiring continued close monitoring,” the BSP said.

The BSP also attributed the improvement to robust loan-loss classification and provisioning practices, allowing banks to identify emerging risks early and prepare for potential loan deterioration.

Banks also increased their investment positions as markets priced in further interest-rate cuts. Total investments increased by 9.5 percent P8 trillion in June. Most investments were placed in national government securities, with a share of 75.8 percent.

As of end-June, banking system assets grew by 7.7 percent to P28.2 trillion while deposits rose by 5.9 percent to P20.7 trillion, driven by savings accounts.

Capitalization also improved, as total capital increased by 10.6 percent to P3.5 trillion. Liquidity buffers stayed strong, with the industry’s liquidity coverage ratio and net stable funding ratio remaining well above minimum regulatory thresholds.

The BSP said these conditions continue to reinforce financial system stability. It noted that the banking system “remains well-positioned to support credit and investment growth, backed by strong capital and liquidity buffers.”