Bangko Sentral ng Pilipinas: Unusual credit growth no cause for concern

The Bangko Sentral ng Pilipinas said that the unusual growth of credit seen in the country this year should not alarm investors, saying that this development would not likely accelerate inflation.

According to the BSP, most of the loans being extended by banks are going to enterprises that are using the money to invest and augment production.

As a result, the additional liquidity arising from brisk lending activities tend to boost supply of, rather than demand for, goods and services, the central bank said.

If demand is held constant, an increase in supply will help temper inflation.

“Growth in bank lending, in fact, may be considered as something that promotes economic growth. This is because a significant portion of the loans are going to the productive sectors of the economy,” BSP Deputy Governor Diwa Guinigundo said.

According to a central bank report, sectors that have benefited from bank lending include mining and quarrying, agriculture, manufacturing and financial intermediation.

Latest credit data from the BSP showed that combined loan portfolio of universal and commercial banks grew by 19.8 percent in August from a year ago to P2.59 trillion, registering the fastest pace in over two years.

In the first nine months of the year, inflation averaged at 4.3 percent.

The government has set the inflation cap for this year at 3 to 5 percent. The BSP said latest estimates showed that inflation would likely stay well below 5 percent until the end of the year.

The BSP is encouraging banks to lend some more, even with the unusual growth in credit, to help boost growth of the economy. This is because banks still have a lot of money that is not being used for productively, a monetary official said.

Banks have P1.6 trillion just parked with the BSP’s special deposit account facility.

The BSP said the economy, the growth of which slowed down in the first half, could actually absorb faster growth in credit.

In the first semester, the economy, measured in terms of gross domestic product, grew by 4 percent. This is slower than the over 8 percent reported in the same period last year.