Bank lending rates seen further going down

Housing, automobile, personal, business and other types of loans have become cheaper in the Philippines, with bank lending rates falling by an average of about one-fourth of one percent since the start of the year.

This was according to the Bangko Sentral ng Pilipinas, which said lending rates for all types of bank loans and all maturities had dropped by an average of 25.3 basis points since January.

The average bank lending rate now stands at only 6.34 percent, BSP data as of July 13 showed.

It said bank loans were expected to become even more affordable in the months ahead.

The BSP, which has already cut its key policy rates by a total of 75 basis points so far this year, said the reduction in commercial/bank lending rates in the country showed that the central bank’s monetary policy was effective.

The goal was to spur demand for loans and, therefore, boost consumption by individuals and investments by enterprises.

The last 25-basis point cut in the BSP’s policy rates, which was implemented last week, brought down its overnight borrowing and lending rates to new lows of 3.75 and 5.75 percent, respectively. The overnight borrowing rate is the interest paid by the BSP on deposits placed overnight by banks, while the overnight lending rate is the interest that the BSP charges on loans it extends overnight to banks.

BSP Deputy Governor Diwa Guinigundo said the 25.3-basis-point reduction in bank lending rates so far this year was an effect of the central bank’s first two policy rate cuts. He said the rate cut that the BSP did last week was expected to make bank loans even cheaper in the coming months.

“Our (BSP) latest assessment of the interest rate pass-through indicates that the 25-bps reduction in January and another 25-bps reduction in March have so far resulted in a reduction of 25.3 bps in bank lending rates. This is consistent with past trends in pass-through,” Guinigundo told the Inquirer.

“Pass-through,” which measures the influence of changes in BSP policy rates on bank lending rates, is the proportion of the decline (or hike) in bank lending rates to the decline (or hike) in the central bank’s policy rates.

The 50-basis point cut in the BSP policy rates in January and March, and the 25.3-basis point cut in bank lending rates translate to a “pass-through” of 50.6 percent so far this year.

Guinigundo said a 100-percent pass-through was expected to materialize in about 12 to 15 months following the adjustment of the central bank’s key policy rates.

In the meantime, Security Bank president Alberto Villarosa, who is also the president of the Bankers Association of the Philippines, said the lower interest rates were expected to accelerate growth in demand for loans and in the loan portfolio of banks in the country. The outstanding loans of universal and commercial banks were originally expected to grow by 15 percent this year, but are now seen to rise by a faster pace with the latest round of policy-rate cut by the BSP, Villarosa said.