June bank lending grew fastest in over two years

The country’s large banks saw their lending activities pick up pace for the 10th straight month, bolstering prospects for faster growth of the Philippines’ gross domestic product but also firming up grounds for further policy rate hikes in the coming months.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) for June transactions show that outstanding loans of universal and commercial banks—net of short-term loans to the BSP—increased by 12 percent, revving up from 10.7 percent in May.

Month-on-month, lending activities in June grew by 2.3 percent over the May volume.

The growth of outstanding loans to residents, net of short-term loans, also revved up, clocking at 11.9 percent compared to 10.6 percent in May.

Mirroring the pace of the total portfolio, loans for production activities grew by 12 percent in June, faster than the 10.8 percent recorded a month earlier.

This was mainly due to greater increases in credit for real estate activities (18.1 percent); manufacturing (17.5 percent); information and communication (29.7 percent); and wholesale and retail trade, repair of motor vehicles and motorcycles (8 percent).

The growth in consumer loans to residents also stepped up at 10.6 percent in June from 8.5 percent in May as credit card loans and salary-based general purpose consumption loans continued to increase.

Also, the growth of outstanding loans to non-residents fired up to 16.3 percent in June from 12.5 percent in May.

“The sustained growth in credit will support the momentum of economic recovery amid the ongoing withdrawal of monetary accommodation,” the Bangko Sentral ng Pilipinas said.

RCBC chief economist Michael Ricafort said in a statement lending growth in June was the fastest in more than two years or since April 2020 at the onset of the pandemic.

Even then, Ricafort said the latest reading was still due to a low base effect.

“Near record low short-term interest rates could further encourage more borrowers to take out more loans, thereby stimulating greater economic activities,” the economist said.

Ricafort noted that the latest readings put bank lending growth ahead of the most recent GDP growth rate, which is 8.3 percent for the first quarter.

On the other hand, he said the growth in bank loans had always been much faster, by about 7-10 percentage points, compared to GDP growth for many years, especially before the COVID-19 pandemic.

Still, double-digit growth in bank lending “could lead to faster GDP growth and could justify any further hikes in the [BSP] policy rate amid higher inflation,” he added.