Bank loans seen rising 10% in 2008
By Michelle Remo
Philippine Daily Inquirer
First Posted 21:19:00 07/20/2008
Filed Under: Banking, Economic Indicators
MANILA, Philippines--The Bangko Sentral Ng Pilipinas (the Philippine central bank) expects banks to do their share in boosting a sluggish economy by increasing their loans by 10 percent this year.
This is despite the central bank's decision to raise its key policy rates by another 50 basis points to combat inflation.
BSP Deputy Governor Diwa Guinigundo said that by the end of the year, he expected the banks' outstanding loans to grow by 10 percent, faster than the 7.8-percent growth recorded in 2007.
Higher loans help spur an economy because the proceeds are spent either by companies for expansion or by individuals to buy cars or houses.
Increased spending, in turn, boosts corporate profits and therefore job opportunities.
The projected growth in bank lending by the end of the year was partly anchored on latest loans data. A study by the BSP showed that outstanding loans by universal and commercial banks alone reached P1.85 trillion as of end-March, 10.6-percent more than the P1.67 trillion in the same period last year.
Analysts, however, were worried that the recent hike in interest rates would stifle lending as borrowers would pay more interest.
Last week, the BSP raised its borrowing and lending rates by 50 basis points to 5.75 and 7.75 percent, respectively, to temper the sharp rise in the prices of goods and services.
An increase in the BSP's borrowing rate encourages banks to deposit more of their funds to the central bank, leaving less money for lending.
The BSP said, however, that it had no choice but to increase its policy rates to check inflation. Controlling growth of money in circulation, such as by encouraging banks to deposit more to the central bank, helps temper demand and eases inflation.
Year-on-year inflation hit 11.4 percent in June, the fastest in 14 years.
Economic growth stood at 5.2 percent in the first quarter, slower than the 7 percent recorded in the same period last year.
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