Bank lending surged to a 14-month high in May driven by sustained growth of consumer loans despite elevated borrowing costs, as Filipino households turned to loans to help meet their basic needs amid high inflation.
Excluding their lending to each other, outstanding loans of big banks grew by 10.1 percent year-on-year to P12 trillion in May, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.
Data sh owed the May uptick was the fastest loan growth recorded since March 2023. It was also brisker than the 9.6 percent increase registered in April.
READ: Philippines’ bank lending growth hit 12-month high in April
Notably, bank lending to consumers managed to sustain a robust growth after soaring by 25.6 percent to P1.4 trillion in May, almost double the prepandemic level. Figures showed credit card loans jumped by 29.4 percent to P776 billion while motor vehicle loans picked up by 21.3 percent to P415.3 billion.
Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said the growth in consumer loans was a “good sign” as it showed that Filipinos still tried to spend despite high interest rates, boding well for the consumption-reliant Philippine economy.
Expensive rates
But Asuncion believed that most of the consumer credit was likely spent on basic necessities amid rising costs of living and expensive borrowing rates.
“We need to look closer if these are spent on basics or nonbasics. My initial assessment is that most are spent on basics because of still high interest rates,” he said.
“This may indicate that the spending outlook may not be a concern even amid persistently high interest rates,” he added.
Overall, the strength of the latest lending growth data defied tight financial conditions. Even credit to businesses to bankroll various production activities jumped by 8.4 percent to P10.1 trillion in May, better than the 7.8 percent uptick in April.
At its last policy meeting in June, the BSP’s Monetary Board kept the benchmark rate that banks typically use as a guide when charging interest on loans at 6.5 percent, an over 17-year high. But BSP Governor Eli Remolona Jr. struck a dovish tone and gave clearer signals of a possible rate cut in August as inflation is expected to ease in the next months.
But until that rate reduction comes, Leonardo Lanzona, economist at Ateneo de Manila University, said consumers would have to endure persistently high borrowing costs.
“Since the interest rates have been elevated, these consumers do not expect them to fall drastically in the short to medium term,” Lanzona said. INQ