Local banks begin raising loan rates

Bangko Sentral ng Pilipinas. INQUIRER FILE PHOTO

Recent monetary policy moves are having their desired effect on the economy, with banks slowly but steadily becoming less aggressive in pushing loans to both households and businesses, regulators said this week.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said banks have started to hike interest rates on loans to account for the central bank’s own move to raise rates.

“We are seeing some signs that banks are beginning to adjust rates. For instance, you may have noticed that the number of ads put out for very aggressive low interest rates on consumer loans have declined,”  Tetangco told reporters in an e-mail.

The BSP’s assessment is consistent with recent surveys of loan officers, who said they have started to tighten credit standards for households due to tighter regulations by the central bank.

Authorities have also sought to tighten liquidity conditions in the economy.

In April and May, the BSP ordered banks to set aside more deposits as reserves, and in June, special deposit account (SDA) yields were hiked from record lows to encourage banks to keep more cash idle in BSP vaults.

Late last month, the BSP raised its benchmark overnight borrowing and lending rates for the first time since 2011 as the Monetary Board sought to temper higher prices by curbing excess demand.

For the January to July period of this year, inflation averaged at 4.3 percent, faster than the 3 percent average for all of 2013.

The BSP projects that inflation will average at 4.33 percent in 2014 or above the midpoint of the official target range of 3 to 5 percent.

The BSP’s main goal is to protect the peso’s purchasing power by keeping prices stable.

Tetangco said higher interest rates for loans to consumers would be driven by business decisions that would “depend from bank to bank.”

“The goal of our policy actions really is to keep  banks alert and mindful of the risks that global conditions could become tighter sooner, and therefore that it is best for them to make adjustments gradual,” he said.

By making gradual adjustments, banks would avoid sudden sharp moves that could prove to be more destabilizing for them, Tetangco sa