Banks’ consumer loan exposure grew in Q1

MANILA, Philippines–Transactions involving cars and houses drove growth in consumer loans in the first quarter of the year, offsetting a slowdown in credit card lending by banks, the regulator reported this week.

Growth in consumer loans at the end of March meant lending to households had expanded consistently every quarter since 2008, fueled by low interest rates and rising family incomes.

Consumer loans by universal, commercial and thrift banks stood at P735.1 billion at the end of the first quarter of the year—up 13.6 percent year on year.

The end-March figure also reflected a two-percent growth from the P721.54 billion posted at end-2013.

“This sustains the quarter-on-quarter growth trend since 2008,” The Bangko Sentral ng Pilipinas (BSP) said.

The central bank looks into consumer financing by universal, commercial and thrift banks as part of a broader effort to monitor the quality of the banking industry’s total loan portfolio.

The maintenance of high loan quality is essential to achieving the BSP’s objective of fostering financial stability.

Nearly half, or about 44 percent, of consumer loans in the first quarter went to finance home purchases, the BSP said. Home loans rose by 17.04 percent in the three-month period.

Auto loans made up about a third of consumer loans. This component grew by 16.26 percent year on year, the BSP said.

Credit card loans were the worst performer, growing by just 6.76 percent in the same period. Credit card receivables made up about a fifth of the total portfolio.

As a share of the total, consumer loans represented 11.85 percent of the industry’s portfolio. Consumer loan exposure of the banks also remained low relative to their peers in the region. At the end of March 2014, the consumer credit exposure in Malaysia stood at 58.1 percent; Indonesia, 28.4 percent; Thailand, 27 percent; and Singapore, 25.7 percent.

The ratio of non-performing consumer loans decreased to 5.2 percent of the total in March from 5.3 percent a quarter earlier. Banks also set aside loan loss reserves of 70.5 percent of their non-performing consumer loans as a safety net against consumer credit risks.

Growth in consumer loans was slower than the 14.65-percent rise registered at the end of 2013. The slowdown was caused by the deceleration in the growth of home loans. The central bank saw this trend coming as it cited surveys that showed banks had started to tighten lending standards by asking consumers for more collateral and hiking interest rates.

A BSP survey of senior loan officers in the first quarter showed that 10 percent of banks said that their lending standards had “tightened somewhat,” while 5 percent said standards were “tightened considerably.”

Banks surveyed said they also asked for higher levels of collateral. They also granted smaller loans, even as demand for credit remained steady.