High rates dampen credit growth in 2023

MANILA, Philippines — The expansion of credit in the country slowed last year as the still elevated cost of borrowing dampened demand, the Bangko Sentral ng Pilipinas (BSP) said.

Initial data from the BSP showed that loans disbursed by universal and commercial banks picked up by seven percent to P11.7 trillion in end-December 2023 from P10.93 trillion in 2022.

However, this was significantly slower than the 13.7 percent expansion recorded the year before.

Bank lending activities for the most part of 2023 were easing due to lagged effects of the aggressive rate hikes of the BSP in a bid to quell inflation and stabilize the peso.

Union Bank of the Philippines chief economist Ruben Carlo Asuncion said the lower lending growth is to be expected given the higher costs of borrowing last year.

The country’s benchmark interest rate is currently at a 16-year high of 6.5 percent.

Month-on-month, loans inched up 2.6 percent due to increased domestic consumption and production to meet holiday demand for goods and services.

“If interest rates start to ease in the second half of the year, we may actually see more demand for financing for production expansion and domestic consumption,” Asuncion said.

As of end-2023, loan releases for production activities grew by only 5.6 percent to P10.12 trillion, as higher interest rates capped investment activity. In 2022, the loan to this sector grew by a faster rate of 12.1 percent

Specifically, loans to real estate activities got the biggest share at P2.42 trillion, up 10.8 percent. It was almost 20 percent of the aggregate.

This was followed by the wholesale and retail trade, repair of motor vehicles and motorcycles at P1.37 trillion and manufacturing at P1.27 trillion.

Meanwhile, consumer loans increased by 23.6 percent to P1.27 trillion in end-December for a 10.36 percent of the total loans disbursed by big banks.

Credit card loans surged by 30 percent to P722.21 billion from P555.28 billion following the higher cap on credit card transactions.

Motor vehicle loans also booked a 16.6 percent increase to P380.6 billion from P326.32 billion, while salary-based general-purpose consumption loans rose 9.4 percent to P133.01 billion from P121.58 billion.