Borrowers continue to enjoy lower rates

MANILA, Philippines - Bank borrowers continued to enjoy lower rates as the accommodative policy stance of the Bangko Sentral ng Pilipinas (BSP) provided support to the domestic economy.

BSP Deputy Governor Diwa Guinigundo said in an interview with reporters that banks have been more accommodating to both corporate and household borrowers as their pass-through rates have reached 120 percent of the rate cut implemented by the policy-setting body of the central bank.

Pass through is defined as the ratio between the change in the lending rate and the change in the policy rate since the beginning of the easing cycle.

The central bank has slashed key policy rates by 200 basis points from December 2008 to July of 2009 as part of easing measures to cushion the impact of the global financial crisis on the domestic economy. This brought the overnight borrowing rate to a record low of four percent and the overnight lending rate to six percent.

The BSP has kept its rates at record lows for 13 straight policy setting meetings since July of 2009 but has continued to unwind crisis-related measures adopted in November of 2008 to release liquidity into the financial system to support domestic economic activity to survive the global economic meltdown.

Latest data showed that bank lender grew at a faster rate of nine percent as of end-November last year from 6.6 percent in end-November of 2009. Banks loans stood at P2.244 trillion as of end-November last year P185 billion higher than the P2.059 trillion recorded as of end-November in 2009.

Authorities attributed the increase in bank lending growth to the 9.9 percent expansion of loans extended to productive activities to P2.02 trillion in end-November last year from P1.84 trillion as of end-November in 2009.

The loan growth to the manufacturing sector almost doubled to 16 percent to P377.53 billion followed by the agriculture, hunting, and fishery sector that expanded by 13.4 percent to P349.7 billion; the real estate, renting, and business services that grew by 11.9 percent to P340.99 billion, the wholesale and retail trade that expanded by eight percent to P246.45 billion; and the transportation, storage and communication that grew by 3.9 percent to P148.92 billion.

On the other hand, the BSP reported that loans for household consumption posted a double digit growth of 12 percent to P190.4 billion as of end-November last year from P169.99 billion as of end-November of 2009. Auto loans surged 22.9 percent to P55.72 billion while credit card loans went up by eight percent to P118.19 billion.

The BSP believes that bank lending would continue to post strong growth as more companies borrow more to bankroll their expansion programs.

A BSP survey showed a sustained increasing demand for loans by corporate and individual borrowers on the back of the lower interest rates, higher cash flow requirements, and lack of other sources of financing.

Results of the Q4 2010 Senior Bank Loan Officers’ Survey showed an overall increase in net demand for loans from enterprises and households from the previous quarter’s survey consistent with the sustained growth in bank lending.

Net demand refers to the percentage difference between banks reporting an increase in loan demand and banks reporting a decrease. The survey covered 35 commercial banks wherein 1 banks responded for a response rate of 60 percent.

The BSP survey showed that the overall demand for loans or credit by enterprises increased further to 36.8 percent in the fourth quarter of last year from 25 percent in the third quarter. Demand from top corporations increased to 43.8 percent from 30 percent followed by the large middle companies to 31.3 percent from 15.8 percent and small and medium enterprises to 16.7 percent from 6.7 percent.

On the other hand, overall net demand for household loans almost doubled to 30 percent in the fourth quarter of last year from 16.7 percent in the third quarter due to a stronger increase in net demand for housing, auto, credit card, and salary loans.