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Banks urged to lend more

Loans-to-GDP ratio in PH remains low, says BSP
/ 11:16 PM January 16, 2013

Banks in the country can lend much more to consumers and businesses without resulting in the overheating of the economy.

This was according to the Bangko Sentral ng Pilipinas, which said there remained a significant room for credit expansion in the Philippines even if bank lending posted another double-digit growth last year.

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Shrugging off concerns that the Philippines may be at risk of overheating due to rising consumer spending and substantial credit growth, BSP Governor Amando Tetangco Jr. said the latest assessment by the central bank did not show such a threat.

Based on estimates by the central bank, Tetangco said, the total outstanding loans in the country accounted for only 35 percent of the gross domestic product. He said the loans-to-GDP ratio in the Philippines was much smaller than those in other emerging markets. This, he said, meant there was still room for credit growth.

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“In other countries, outstanding loans already exceed GDP,” he said.

Tetangco said that a few years back, outstanding loans in the Philippines were quite small. Given the low base, he explained, bank lending can grow significantly without causing the domestic economy to overheat.

Data from the BSP showed that outstanding loans from universal and commercial banks amounted to P3.08 trillion as of the end of October, up by 15.8 percent from P2.79 trillion as of the same period last year.

Based on industry projections, the double-digit expansion of bank lending was sustained in the remainder of 2012.

Bank lending in 2011 likewise grew by a double-digit pace. Outstanding loans from the big banks reached P2.79 trillion as of end-2011, up year on year by 19 percent.

Earlier, Deutsche Bank warned that the Philippines may be facing threats of overheating. Its economist, Michael Spencer, cited the record-low interest rates, significant credit growth, and rising employment. He said these factors were substantially fueling consumer spending, which later on could cause inflation to accelerate.

The BSP, however, said rising investments in the country are helping temper the impact of consumer spending on inflation. It said investments are boosting supply of goods and services, which help temper increase in consumer prices.

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