BSP sees unprecedented rise in bank lending

Bank lending grew by 22 percent in October from a year ago—the fastest pace on record—as rising liquidity allowed banks to extend more credit.

Data from the Bangko Sentral ng Pilipinas showed that outstanding loans of universal and commercial banks amounted to P2.66 trillion as of end-October this year from P2.18 trillion reported in the same period last year.

The expansion of credit benefited mostly the manufacturing, real estate, utilities, trade, financial intermediation, transportation and communications, and construction sectors, according to the BSP.

“Robust credit growth should help buoy up the domestic economy in the midst of ongoing external headwinds,” BSP Governor Amando Tetangco Jr. said in a statement yesterday.

The rise in bank lending drove up domestic liquidity, or M3, by 6.9 percent to P4.3 trillion in October from a year ago, the BSP reported.

Credit has been growing by a double-digit pace since January, and has accelerated to over 20 percent since September on account of rising resources of banks, enabling them to accommodate more loan applications.

Monetary officials said banks’ resources are on the rise, due largely to growth in deposits as well as improving profitability of most financial institutions.

They said increasing deposits from the public reflected confidence in the local banking sector.

The International Monetary Fund said the country’s banking sector could weather the ill effects of the crisis in Europe given sufficient liquidity and high capitalization of Philippine banks.

Earlier, Tetangco said robust growth in bank lending was the reason why the BSP kept key interest rates steady, despite the unfavorable developments abroad.

The BSP believes that interest rates are still low enough to help encourage people to borrow from banks and use the money to support consumption and investments.

Still, the economy slowed down this year after registering a three-decade high growth rate in 2010. After expanding by 7.6 percent last year, the economy grew by a much slower pace of 3.6 percent in the first three quarters of 2011.

Since interest rates are still low, as evidenced by high credit growth, then boosting growth of the economy will depend on other factors apart from key interest rates, the BSP said.

Economists said that the economy slowed down in the first three quarters of this year due to weakened global demand for the country’s exports and the lower-than-programmed spending by the government.

The sluggish US economy and the debt crisis in Europe led to a decline in Philippine export earnings.