Interest rate hike to boost bank lending

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco said rising interest rates would ultimately lead to an increase in bank lending.

He said a myriad of factors affect bank lending, but chief among these are concerns over macroeconomic stability.

When inflation rate is unusually high over a prolonged period, both corporate and household income suffer, creating a broad economic downside.

“As the rate increases lead to stability in the actual inflation and inflation expectations, these should further encourage lending growth moving forward,” Tetangco said.

He said the banking sector has always had the liquidity to lend.

“The ample liquidity in the system should support stable growth in bank lending. We have already seen the uptrend in lending since the beginning of the year.”

“We are confident that this will remain intact,” he added.

The latest data from the BSP showed a 24.2-percent growth in bank lending last June, based on the revised system of bank reporting.

The BSP said the growth in June bank lending followed the trend set since May when the BSP implemented the new system under the Financial Reporting Package (FRP).

The BSP said bank lending net of banks’ reverse repurchase (RRP) placements with the BSP reflected the same trend, as it increased 18.1 percent against the 15.8-percent growth in May.

The FRP replaced the Consolidated Statement of Condition (CSOC) reports and adopted the detailed classification of the amended 1994 Philippine Standard Industrial Classification (PSIC) for international comparability.

The BSP explained that the system classified lending by production activities (which covers 16 economic sectors) and by household consumption purposes (with three economic categories).

Previously, bank reports classified loans into only nine economic sectors.

Loans for production activities, which accounted for the bulk of total outstanding loans, grew 15.7 percent after posting a 13.6-percent growth in May.

The BSP said in June, production loans were driven largely by credit extended to wholesale and retail trade (which grew 38.5 percent); electricity, gas and water (43.8 percent growth year-on-year); transportation, storage and communication (seven percent) and agriculture, hunting and forestry (11 percent).

Lending to other community, social and personal services slowed down from 83.9 percent growth in May to 39.5 percent and so did real estate, renting, and business services which slowed down from 14.1 percent in May to 6.9 percent.

Consumption loans, which accounted for about eight percent of total loans, rose 22 percent from 21.6 percent in May, higher than the growth of 19.4 percent (revised) in March and 15 percent in April.

The BSP said the growth in consumption loans was reflected mainly by an expansion in credit card receivables which grew 27.3 percent. Auto loans also grew 15.3 percent in June from a decline of 6.9 percent in May.