BSP rate hikes to translate to higher borrowing costs

CEBU, Philippines — Amid the soaring inflation, consumers have also seen the rising interest rates.

But how exactly is this affecting private borrowers and companies as well?

This could basically mean higher borrowing costs especially of banks.

The Bangko Sentral ng Pilipinas has so far raised policy interest rates by 150 basis points since May amid the rising inflation.

The goal of these rate hikes is to fight inflation by reducing the amount of cash in the system, which should lower demand and cut prices.

"Interest rates are still at historically reasonable levels," Jose Franco Soberano, chief operating officer of publicly listed Cebu Landmasters, told The FREEMAN yesterday.

"We are back to 2012 interest rate levels but still lower than levels in the early 2000s and much lower than 1990s," the COO said.

For real estate developers, he said the higher rates could push them to consider other capital financing means.

"For developers, there are many financing strategies to consider including getting fixed rate development loans or notes, which (our company) was able to secure recently with a P5 billion notes facility for 5, 7 and 10 years," he explained. 

Higher interest rates could temper banks’ loan growth as elevated inflation may dampen consumer demand.

For private borrowers, while they may see higher borrowing costs, Soberano said there are other financing options especially for real estate loan borrowers. 

"For real estate end-user financing, the impact will not be much as end-user financing can enjoy terms of up to 20-25 years and rates usually balance out over these longer term periods," the company executive said.

"Thus we continue to see a very healthy end-user financing availability for buyers," he pointed out.

The central bank’s policy tightening could determine interest rates on consumer loans like a housing loan from banks. But market competition also dictates rates.

In general, banks use the BSP’s overnight borrowing rate as a benchmark to price their loans.

In a report this month, global debt watcher S&P Global Ratings said that companies in the Philippines are among the “most exposed” to interest rate pressures, although the impact is likely “moderate effect overall.”

“Any sensible interest-rate sensitivity and stress analysis would be company-specific because capital providers would be more choosy when lending capital,” the credit rater said.

Central banks of emerging markets like the Philippines have recently come under pressure amid a stronger US dollar and tightening monetary policy in advanced economies.

Also in a recent report, Fitch Ratings said interest rates are rising as domestic liquidity tightens, pointing to a less favorable environment for Philippine borrowers overall.

"Against this, we expect bank credit profiles to remain broadly steady — supported by resilient asset quality, acceptable profitability, stable funding and adequate capitalization,” the debt watcher also said.