Bank lending to stay resilient despite high rates

MANILA, Philippines  —Bank lending is forecast to grow faster in 2024 on the back of brisk economic activity and the expected start of monetary policy easing later this year, although a high interest rate environment may weigh on borrowers’ ability to repay loans in the short-term.

Credit growth is seen accelerating to 10 percent this year, from the estimated 5.7-percent expansion last year, BMI Research, a unit of the Fitch Group, said in an emailed commentary on Thursday.

That BMI still expects a quicker loan growth this year showed how credit likely remained resilient despite the Bangko Sentral ng Pilipinas’ (BSP) aggressive anti-inflation rate hikes. This, in turn, bodes well for an economy where consumer spending is king.

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What fueled BMI’s optimism was its expectation of a 6.2-percent gross domestic product growth this year driven by private consumption, which is projected to “hold up pretty well on the back of easing inflationary pressures.”

“We expect loan growth to stage a stronger performance in 2024. Better macroeconomic conditions and lower interest rates in [the second half of 2024] bode well for the credit environment,” BMI said.

“We also see limited risks to financial stability as the Philippine banking system is underpinned by a strong balance sheet and robust capital buffers,” it added.

At its last meeting for 2023, the powerful Monetary Board kept the BSP’s policy rate unchanged at 6.5 percent, the tightest in 16 years.

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Despite the high borrowing costs, BMI said consumer loans “surprised” as these stayed resilient. Meanwhile, most of the Philippine credit weakness will stem from the manufacturing sector, which makes up about 11 percent of the total loan portfolio, BMI said.

Latest central bank data showed bank lending grew by 7 percent in November, among the slowest pace seen in two years, after an impressive 23.6-percent growth in consumer loans was tempered by sluggish 5.7-percent expansion in loans for production activities.

For BMI, the hiking cycle has finally concluded as inflationary pressures recede, adding that bank lending could draw more strength from upcoming rate cuts.