Loan-fueled consumer spending flagged

Thrift banks in the Philippines are outgrowing the domestic banking system in profitability as loans to households grow briskly, but a UK-based think tank raised the alarm about the sustainability of consumer loans.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said on Wednesday the profitability of thrift banks at the end of the first semester 2022 was pegged at 57.1 percent while that of the Philippine banking system was 16.7 percent.

“In particular interest is that the profit growth of thrift banks outpace that of the entire banking system by more than threefold,” Medalla said.

The BSP chief was a keynote speaker at the opening of this year’s annual convention of the Chamber of Thrift Banks. Founded in 1974, the 48-year-old umbrella group consists of 37 member banks.

Pantheon Macroeconomics said in a commentary household spending in the Philippines was regaining momentum and “apparently resilient” in the third quarter of 2022, based on data as of the end of August.

“We believe that the apparent resilience in household spending in the third quarter—during the acute stage of the surge in inflation—is unsustainable and likely will come at the expense of future growth,” the think tank said.

Pantheon Macroeconomics said Filipino consumers are turning more toward debt to fund day-to-day spending, which is not a long-term solution, especially with the BSP boasting one of the most aggressive tightening cycles in the region.

The Monetary Board has hiked the BSP’s benchmark interest rates by a total of 2.25 percentage points since May.

“The BSP’s latest consumer survey indicates clearly that fewer households were able to set aside savings in the third quarter, delaying the nationwide rebuilding of the nest eggs lost in the past two years by yet another quarter,” the think tank said.

“We continue to believe that this process will impose a ceiling on consumption growth, well after the end of the economy’s bout against inflation,” it added. INQ