Bank loan rates decline in 2012

Bank lending rates fell by an average 71.5 basis points to reach record lows in 2012 and are expected to further decline this year.

According to the Bangko Sentral ng Pilipinas, the average drop in the cost of bank loans from the end of 2011 to December last year was influenced by the reduction on its key policy rates. Last year, the policy-making Monetary Board cut the central bank’s key policy rates four times, each by 25 basis points for a total of 100 basis points (equivalent to one percentage point).

The rate reductions were intended to make loans cheaper, encourage individuals and businesses to borrow and boost consumption and investments. The BSP said there was a need to boost domestic demand to help counter the adverse effects of global economic problems on the Philippine economy.

“The latest pass-through as of December 2012 is 71.5 basis points. The computed pass-through is relative to bank lending rates as of the same period of the previous year,” BSP Deputy Governor Diwa Guinigundo told the Inquirer. “Pass-through” is the decline or increase in average bank lending rates as a proportion to the drop or increase in the central bank’s key policy rates.

Officials said the impact of movements in the BSP’s key policy rates on bank lending rates was not immediate. They said the 100-basis-point cut in the central bank’s key policy rates last year might be fully reflected in commercial lending rates this year.

Given that bank lending rates have fallen by 71.5 basis points, these were expected to fall further by another 28.5 basis points. The decline could be bigger if the BSP would cut its key policy rates this year.

The drop in bank lending rates last year was credited for helping boost consumption and investments, which helped drive the economy’s robust growth.

The Philippine economy is estimated to have grown by more than 6 percent last year to beat the official target of 5-6 percent. The government has set a growth target of between 6 and 7 percent this year.

According to BSP officials, there was a good chance for the Philippines to keep a healthy pace of growth this year partly because of the healthy demand for bank loans.