Economist: Low interest rates to benefit big businesses only

CEBU, Philippines - The low interest rate regime may be seen as good time for businesses to borrow, but an economist said this “abnormal” interest rate environment can only benefit a few sectors.

Cebuano economist Ernesto Yap said that the this low interest rate in the Philippines today is “bad” for the Small and Medium Entrepreneurs (SMEs), as competition for credit approval is largely biased to big businesses.

“It’s easier for a bank to approve a billion peso loan of big company, than risk themselves in approving small pocket loans from SMEs,” said Yap who is also a professor for economics at the University of San Carlos (USC).

Yap projects that the low interest rate regime will continue in the long or short term, as he claimed that the Bangko Sentral Ng Pilipinas (BSP) is in favor of helping the big businesses.

In terms of borrowing, Yap said BSP is inclined of giving the environment easy for the big business, thus interest rate has continued to settle in the lowest level.

On the other hand, in a separate interview with Cebu Bankers’ Club (CBC) past president Prudencio Gesta, he said that the banking sector is seeing an improving appetite from the corporate sector to avail of lending and credit facilities offered by the banks.

Gesta said the low interest rate environment, and the increased level of confidence among investors to the improving economic state of the country, the banking sector is preparing for the robust demand for corporate lending.

Unlike the past, after credit crunch happened after the 1997 regional economic crisis, loan takers of banks from the corporate market had slowed down, thus the banking sector started to strengthen its consumer lending products.

This time however, Gesta said companies have started to turn to banks to fund expansions, and other capitalization requirements, which means the recovery of the big-ticket lenders.

Although, banks have maintained their strict loan processing requirement, Gesta said that most companies now can easily avail of big-ticket lending, as the economy improves.

Gesta, who is also the senior vice president and deputy group head for Rizal Commercial Banking Corporation (RCBC) said that in Cebu, corporate loans for manufacturing, trading, real estate and services (food, hotels and transport) are the top four sectors that are now showing more interest for lending.

According to Gesta, the wider opening of banks for corporate loans now, and the confidence of the private sector to invest, will not only provide healthy growth for the banks, but significantly boost the economy in the country as well.

The recent government’s thrust to push Private-Public-Partnership (PPP) also encouraged Filipinos to invest on infrastructure.

Gesta said availability of funding is not a problem, as banks have money to be lent to the investors.

Immediately after the 1997 regional economic crunch, interest rates reached to as high as 21 percent, compared to average of five percent to 10 percent today.

Besides, the non-performing loan (NPL) of the banking sector is now at its lowest at four percent—opening up a favorable environment for corporate big-ticket lending activities.

Metropolitan Banking Corporation (Metrobank) vice chairman Francis Sebastian also said that Filipinos should take advantage of the P1 trillion idle funds in the Philippines this year.

Sebastian urged the business sector in the Philippines to ride on and grab the golden opportunity the economy is now offering.

Bangko Sentral Ng Pilipinas (BSP) governor Amado Tetangco earlier said that the fundamentally strong banking system facilitated a smooth flow of credit in the country.

However, despite the attractive environment for credit availability, Yap said the SMEs are still finding difficulties in accessing credit offering from banks, as they are also competing with big-ticket borrowers. (FREEMAN)