Bank lending in Philippines seen staying on growth path

The banking industry expects lending to again grow at double digits this year, on the back of a robust economy that will fuel demand for loans and other financial services.

The Bankers Association of the Philippines (BAP) said plans of the government to increase public spending, better prospects for the tourism industry, as well as the improving economy of the United States—the country’s biggest export market—are some of the factors that will help accelerate growth of the Philippines this year.

BAP said rising economic activity normally leads to a rise in demand for bank loans, which support not only consumption but also investments.

BAP president Aurelio Montinola III told reporters Wednesday that lending growth is likely to hit between 10 and 15 percent in the first quarter, and then accelerate in the succeeding quarters to hit a full-year average of between 15 and 20 percent.

“Appetite for lending will continue to be strong and to be supported largely by business optimism,” Montinola said. “The economy will register faster growth this year.”

In the first three quarters of 2011, the economy grew by 3.6 percent. The consensus forecast is for the economy to grow below the 4.5-percent minimum target for the full year.

For this year, however, Montinola said economic growth is expected to be faster.

Interest rates are expected to fall this year, but Montinola said this is not likely to dampen appetite of banks to lend more.

The Bangko Sentral ng Pilipinas has hinted that it will cut this year its key policy rates, which influence commercial interest rates, as a means to help beef up demand for loans, and boost consumption and investments. The BSP said a rate cut will help cushion the ill-effects of the lingering debt crisis in the eurozone on the Philippine economy.

Montinola said that lower interest rates would drag interest income of banks, but that banks will try to offset this by lending more.

“What we have to do is lend more. We have to serve more customers,” Montinola said.

Latest lending data from the BSP showed that as of end-November, outstanding loans from universal and commercial banks amounted to P2.75 trillion, up by 22.5 percent from the P2.24 trillion registered as of the same period the previous year.