Bank lending continues ascent in May

MANILA, Philippines — Credit growth was sustained for the tenth straight month now, hitting its best finish since the onset of the pandemic as the loosening of restrictions enabled more economic activities to resume.

What’s new

Excluding interbank lending, outstanding loans issued by big banks expanded 10.7% year-on-year in May to P9.97 trillion, the Bangko Sentral ng Pilipinas reported Thursday.

This was a better finish compared to the 10.1% growth recorded in April. Month-on-month, bank lending rose 5.9%.

In turn, more money circulated in the domestic economy. A separate BSP report showed M3, a measure of money supply, rose 6.9% year-on-year in May to P15.3 trillion, albeit slower compared to the 7.3% annual growth recorded in the preceding month.

Why this matters

Credit growth is crucial for any economy that depends on consumption. When bank lending sank in 2020 after lenders feared bad loans would skyrocket amid the pandemic, the BSP slashed interest rates to spur loan growth within the consumption-starved domestic economy.

The ultra-loose monetary policy started to pay off in August last year, when bank lending returned to growth path after eight straight months of contraction. As the economy continues to recover, the BSP began its tightening cycle in May to cool down quickening inflation.

What an analyst says

For Leonardo Lanzona, economist at Ateneo De Manila University, the start of the BSP's normalization of domestic monetary policy could have influenced the figures in May. The central bank's benchmark rate currently stood at 2.5%, after two successive rate hikes in May and June.

"It is possible that people are expecting rates to increase in the near future and so decided to borrow now," Lanzona said in a text message.

"In turn, this becomes a self-fulfiling prophecy that leads to increasing interest rates, hence stifling future borrowing," he added.

Other figures

• Data from the BSP showed most of the growth came from loans extended to production activities, which expanded 10.8% year-on-year in May. Under this segment, lending to businesses engaged in real estate, manufacturing, and information and communication, wholesale and retail trade, repair of motor vehicles and motorcycles and construction all rose by double digits.
• Consumer loans continued their climb, growing 8.5% year-on-year in May.