Bank lending is picking up, growing at its fastest pace in 2 years

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Lawrence Agcaoili – The Philippine Star

October 2, 2022 | 12:00 noon

MANILA, Philippines – Growth in loans disbursed by major banks accelerated to 12.2 percent in August from 12 percent in July, the fastest in more than two years, despite a string of rate hikes by the Bangkok Sentral ng Pilipinas (BSP) were carried out to suppress inflation.

This was the fastest since April 2020’s 12.7 percent.

Preliminary data released by the central bank showed that credit released by universal and major banks totaled 10.33 trillion pesos at the end of August, 1.12 trillion pesos more than the 9.2 trillion pesos recorded in the same period last year .

“Continued credit expansion and ample liquidity will continue to support the recovery in economic activity and domestic demand. Looking ahead, the BSP reiterates its commitment to ensure that liquidity and lending conditions remain in line with the BSP’s price and financial stability mandates,” the BSP said.

Loans granted for manufacturing activities rose 11.5 percent to 9.08 trillion pesos in August from 8.14 trillion pesos in the same period last year and accounted for 87.9 percent of total loan disbursements.

The real estate sector posted double-digit growth of 13.9 percent to 2.09 trillion pesos and accounted for 20.2 percent of total spending, followed by manufacturing with a 15.9 percent increase to 1.21 trillion pesos with a share of 11 .7 percent.

Loans disbursed to wholesale and retail trade, auto and motorcycle repair rose 9.7 percent to 1.18 trillion pesos, while loans to the utility sector for electricity, gas, steam and air conditioning rose 9 percent to P1. 21 trillion.

According to BSP, consumer loan disbursements to households rose at a faster rate of 18.3 percent to Ptas 950.79 billion as of the end of August.

Credit card loans rose 24.4 percent to 497.7 billion pesos, while auto loans rose 2.7 percent to 324.53 billion pesos.

Fitch Ratings earlier said credit growth in the Philippines could slow in the second half amid the central bank’s ongoing tightening cycle to anchor inflation expectations.

In its unrated commentary, titled “Philippine Banking Sector to Sustain Improved Profitability as Rate Rises,” Debt Watcher said high inflation and GNP monetary policy response are likely to dampen credit demand for the remainder of the year.

“We expect credit growth to slow in the second half as demand is dampened by inflation and a 175 basis point hike in interest rates since the start of the year,” Fitch said.

Including the 50 basis point hike on Sept. 22, the BSP has hiked rates by 225 basis points so far, taking the overnight reverse repo rate to 4.25 percent from an all-time low of 2 percent.

Joyce Ong, senior analyst for the Service Financial Institutions Group at Moody’s Investors Service, told reporters that Philippine banks’ non-performing loans (NPL) ratios have already peaked at 4.5 percent over the past year.

“We think it will continue to slowly go down over the next year or two,” Ong said.

Latest data from BSP showed that Philippine banks’ NPL ratio fell for the fifth straight month, hitting a two-year low of 3.57 percent in July, compared with 3.6 percent in June.

“But since then, with the reopening of the economy in the second half of last year, we’ve seen the NPL ratio drop due to the recovery in economic activity, which is really slowing down the overall formation of these loans,” Ong said.

Meanwhile, BSP also reported a 6.8 percent increase in domestic liquidity to 15.4 trillion pesos at the end of August, slower than July’s 7 percent expansion.

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