Modest business appetite curbs PH bank lending growth

MANILA, Philippines  —Bank lending grew by 7 percent in November, among the slowest pace seen in two years, as cautious appetite for business loans tempered the impact of robust household credit expansion.

Excluding their lending with each other, outstanding loans of universal and commercial banks reached P11.4 trillion in November, the BSP reported on Friday.

The growth was a tad slower than the 7.1-percent expansion recorded in October, when bank loans amounted to P11.31 trillion, as the local financial system slowly absorbed the anti-inflation rate hikes of the Bangko Sentral ng Pilipinas (BSP).

On a month-on-month basis, loan growth in November stood at 0.6 percent.

READ: PH financial system sound and stable, says Bangko Sentral

The marginal credit growth over the previous year’s level was in line with a slower increase in domestic liquidity. Based on a separate BSP report, domestic liquidity—a broad measure of money supply—expanded 7 percent year-on-year to about P16.8 trillion in November, from the revised 8.1 percent growth in October.

Domini Velasquez, chief economist at China Banking Corp., said the aggressive rate hikes by the BSP to tame demand-side inflation were starting to temper appetite for bank loans, especially credit for business.

Data showed that loans for production activities had gone up by 5.7 percent in November versus the 5.9-percent growth in the previous month.

Key drivers were loans to major sectors including real estate activities (up 11.9 percent); electricity, gas, steam, and air-conditioning supply (up 12.8 percent); as well as wholesale and retail trade and repair of motor vehicles and motorcycles (up 9.6 percent).

READ: PH consumer debt surging, BSP data show

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., noted that bank loans had accounted for about 50 percent of the domestic economy “but still among the slowest in nearly two years or since December 2021.”

He said credit growth was “partly weighed by still relatively higher interest rates that made [borrowings] more expensive, thereby partly slowing demand for loans in recent months.”

Robust consumer spending

Meanwhile, consumer loans or those typically availed of by households increased by 23.6 percent in November, from 22.8 percent in October, driven by the faster growth in credit card loans, motor vehicle loans and salary-based general purpose consumption loans.

“Lending to businesses seemed to have stabilized, with a slight downward bias, due to high interest rates. We expect this to persist until the BSP is ready to pivot with a rate cut, possibly in the second half of the year,” Velasquez said.

READ: Oct bank lending picks up pace, ending six-month slowdown

“On a positive note, consumer loans are still robust as consumer demand remains strong despite high inflation in the past two years. The country’s favorable job environment could have provided Filipinos with confidence to borrow money,” she added.

At its last meeting for 2023, the powerful Monetary Board kept the BSP’s policy rate unchanged at 6.5 percent, the highest in 16 years, and stressed the need to “keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident.” —Ian Nicolas P. Cigaral INQ