Credit growth up in January amid brisker lending to businesses

MANILA, Philippines  — Bank lending grew at a faster rate compared with a year ago in January, as loans to businesses halted two consecutive months of slowdown amid pressures from high borrowing rates.

Data released on Friday by the Bangko Sentral ng Pilipinas (BSP) showed outstanding loans of big banks, excluding their lending to each other, amounted to P11.54 trillion in the first month of the year, up by 7.8 percent.

That expansion was quicker than the 7.1-percent credit growth recorded in December.

Overall, credit growth had been under pressure from high interest rates meant to tame a stubbornly high inflation.

At its meeting last month, the Monetary Board left its key rate unchanged at 6.5 percent, the highest in more than 16 years, in what the BSP called a “prudent” move amid persistent risks to the inflation outlook.

READ: In a ‘prudent’ move, BSP keeps key rate at 6.5%

Banks use the BSP’s benchmark rate as a guide when charging interest rates on loans. By making borrowing costs more expensive, the BSP wants to temper strong demand for commodities with limited supply. This, in effect, tames inflation.

Earlier this week, BSP Governor Eli Remolona Jr. said the central bank might not cut rates “soon” amid lingering “upside risks” that may upset inflation expectations, particularly the sustained gains in prices of rice, a major food staple for Filipinos.

Consumer loans

Figures showed bank lending to businesses finally posted a brisker expansion of 5.9 percent in January, from 5.6 percent in December, after two straight months of sluggish growth that started in November last year.

READ: Modest business appetite curbs PH bank lending growth

The uptick was mainly due to higher loans extended to companies engaged in real estate (11.4 percent) and wholesale and retail trade (7.4 percent) activities.

Meanwhile, consumer loans continued to show resilience in the face of a high interest rate environment after growing by 25.2 percent in January, from 23.9 percent in the preceding month. Data showed that strength came from robust demand for credit card and motor vehicle loans, as well as salary-based loans.

“Looking ahead, the BSP will ensure that liquidity and bank lending conditions remain in line with its price and financial stability objectives,” Remolona said.

Bad debts up

While bank lending remains relatively strong, a bigger proportion of lenders’ loan portfolio had turned sour in January as some borrowers faced difficulty in paying debts due to high rates.

READ: PH banks see lower bad debts in 2024

Separate data from the BSP showed nonperforming loans (NPL)—or bank credit that remained unpaid 30 days past the due date—cornered P460.76 billion of the banking sector’s total loan portfolio of P13.38 trillion in January.

That translated to an NPL ratio of 3.44 percent, up from 3.24 percent recorded in December.

Moving forward, Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said rate cuts could boost demand for bank loans and temper the rise of unpaid credit.

“For the coming months, an easing inflation trend that could justify future interest rate cuts by the Fed and locally could lower borrowing costs and help spur greater demand for credit and could also lead to lower NPL ratio,” Ricafort said.