Bank lending rates rise as credit demand grows

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After hitting record low levels in 2012, commercial lending rates have started to climb since the start of the year on the back of growing demand for credit that comes with an expanding economy.

According to the Bangko Sentral ng Pilipinas, banks have started to raise their average lending rates by an estimated 24.4 basis points since January after the rates hit rock bottom by the end of last year due to the BSP’s policy intervention.

In particular, the BSP had cut its key policy rates four times in 2012 by a total of 100 basis points, bringing the overnight borrowing and lending rates to historic lows of 3.5 and 5.5 percent, respectively.

The move was meant to encourage banks to reduce their own lending rates which, in turn, would spur demand for loans, and boost consumption and investments.

Monetary officials believe that economic activities in the country must increase to offset the dampening effects of weak global demand for exports.

BSP Deputy Governor Diwa Guinigundo said late Thursday that the latest “pass-through rate” now stands at 47.1 percent compared with the 71.5 percent recorded by the end of 2012.

“Pass-through rate” is the drop or increase in average bank lending rates expressed as a proportion of the drop or increase in the policy rates of the BSP.

This means that with the pass-  through rate at 71.5 percent as of end-2012, average bank lending rates fell by a total of 71.5 basis points throughout last year.

But Guinigundo said that based on the latest data collected by the BSP, the pass-through rate had declined to just 47.1 percent. This means that bank lending rates have started to rise since the start of 2013.

“The pass-through rate has leveled off. This means banks have started to increase their lending rates,” Guinigundo explained.

But despite the uptick in commercial lending rates this year, the BSP maintains that the interest-rate environment will remain generally low at least over the short term. This means the cost of borrowing will not rise to levels seen before 2012.

The historic low interest rates last year served to boost demand for loans which, in turn, helped the Philippine economy attain robust growth.

The BSP earlier reported that outstanding loans from universal and commercial banks hit P3.24 trillion by the end of 2012, up year-on-year by about 16 percent from P2.79 trillion.

At the same time, the economy grew by 6.6 percent in 2012 from the previous year, beating most projections and the government’s own target of 5 to 6 percent.

Since the start of 2013, the BSP has maintained its key policy rates.

Nonetheless, monetary officials have already slashed the interest rate on special deposit accounts (SDAs) three times by a total of 150 basis points. The SDA rate now stands at just 2 percent, after the latest rate cut announced last Thursday.

The cut in the SDA rate is meant to encourage banks to withdraw some of their deposits in the SDA facility of the BSP and use the money to lend more to businesses, officials said.

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