Bank lending extends growth streak in July as borrowing costs stay low

MANILA, Philippines — Credit growth grew for the 12th straight month in July, as it continues to benefit from cheaper borrowing costs as a result of the pandemic-era rate cuts from the Bangko Sentral ng Pilipinas.

Excluding interbank lending, outstanding loans issued by big banks expanded 12% year-on-year in July to P10.2 trillion, the BSP reported on Wednesday. The increase was unchanged from growth recorded in June.

Month-on-month, credit inched up 0.6%. 

That said, more money circulated in the domestic economy. A separate BSP report revealed M3, a measure of money supply, rose 7% year-on-year in July to P15.4 trillion, albeit slower compared to the 7.2% annual growth recorded in the preceding month.

“Bank lending continues to benefit from previous easing by BSP. Growth momentum has solidified and ensures expansion over the next few quarters. Bank lending expected to remain in expansion as economy reopens and demand for credit stays healthy,” Nicholas Mapa, senior economist at ING Bank in Manila, said.

Credit growth is crucial for an economy that depends on consumption. When bank lending sank in 2020 after lenders tightened their credit standards while borrowers became wary of being saddled with debts, the BSP slashed interest rates to spur loan growth within the consumption-starved domestic economy.

This move paid off, with credit returning to growth in August last year after 8 straight months of contraction. But with inflation spoiling economic growth by crimping consumption anew, the BSP started its tightening cycle in May and had since reversed all the rate cuts it made at the onset of the health crisis.

The benchmark rate currently stood at 3.75% after the central bank lifted it by a total of 175 basis points.

Sought for comment, Domini Velasquez, chief economist at China Banking Corp., said the domestic economy will be able to cushion the BSP’s aggressive rate hikes. 

“Although the BSP has been more aggressive in hiking its policy rates recently, we expect that the economy has sufficient momentum to absorb monetary tightening,” she said in a Viber message. 

Broken down, central bank data showed most of the growth emanated from loans extended to production activities, which rose 11.6% on-year in July. Under this segment, lending for real estate activities, manufacturing and information and communication expanded by double digits. 

Consumer loans continued their ascent, growing 14.7% year-on-year in July. 

Velasquez noted that bank lending will still improve considering it will take more than six to 12 months for the recent rate hikes to seep into the economy. 

“On the other hand, we think that moving forward, consumer loans are likely to soften under a high inflation and high interest rate environment. Hopefully, this will be offset by increasing economic activities,” she added.