BSP guard up as rising loans fuel concerns

MANILA, Philippines–The Bangko Sentral ng Pilipinas (BSP) has under control local banks’ stockpile of consumer loans which, despite having grown in recent years, still account for a small portion of the financial industry’s total portfolio.

At the Chartered Financial Analysts Society’s Philippine Investment Conference on Wednesday, BSP Deputy Governor Diwa C. Guinigundo admitted that the authorities were concerned over the growing use of credit cards and the rapid rise in auto loans, which led to record car sales in recent months.

“But relative to the portfolio, it remains a small portion,” Guinigundo said, referring to the consumer loans.

Moody’s Investor Service on Wednesday warned that the growing stock of household debt of Southeast Asian banks threatened to undermine the region’s stability. The risk for the Philippines may be heightened, the rating firm said, due to the large contribution of consumer spending on domestic output.

Countries in the region, such as Singapore and Malaysia, are safer because their economies are less reliant on consumer demand. But levels of household debt in those countries are higher than that of the Philippines.

A credit crunch for households—a possible result of rising interest rates—may prompt Filipino consumers to tighten their purse strings, resulting in a slowdown of the local economy, which relies heavily on domestic demand.

At the end of August, the country’s universal and commercial banks had P316.14 billion in loans classified under household consumption—up 16.6 percent year on year. These were in the form of salary and auto loans, and credit card receivables.

The figure was less than a tenth of the outstanding loans of major banks, which reached P4.56 trillion at the end of June, or up by a fifth over that of the year before.

Guinigundo said the BSP was not worried, noting that a rapid increase in housing loans should be expected with the sustained expansion of the domestic economy.

“The economy is expanding and job opportunities are also rising,” he said, citing the growth of the outsourcing sector. According to the latest data, the outsourcing sector now employs over a million people in the country.

“It is our young people that consume. This is something we should expect,” he said.