Prospect of lower rates slowing down loan growth

Large scale borrowers—corporations and future homeowners—may be being deterred from taking out loans by expectations of lower interest rates over the near term which, in turn, explains the sluggish growth of bank lending in the Philippines despite successive monetary policy easing measures.

Thus explained the senior economist of ING Bank Manila, Nicholas Mapa, who said chief financial officers of companies were taking their cue on the timing of their borrowings from the pronouncements of the central bank chief about possible rate cuts going forward.

“For the moment, bank lending continues to be constrained as CFOs supposedly play a waiting game for rates to be slashed further and as they deal with compliance heavy regulations that may be tagged as another reason for the slowdown in lending activity,” he said in an emailed note to the press.

For September, fresh loans were up 10.5 percent from last year, registering the same print in August with analysts tagging reluctance on the part of corporates to take on hefty loans as they wait for rates to “hit rock bottom,” he said.

“They also cite the dovish Governor [Benjamin Diokno] and expectations of further rate cuts for the hesitation and thus we may not see bank lending pick up regardless of additional [reserve requirement] reductions as CFOs await possible further rate cuts from the BSP,” Mapa said.

Meanwhile, money supply growth tiptoed higher to 7.7 percent from 6.3 percent after BSP’s infusion of roughly P300 billion via reserve requirement reductions and as fresh peso liquidity was created by BSP’s restocking of its gross international reserves, now up to $85.58 billion from $84.48 billion.