Loan growth hit fastest in nearly 2 years in September

Bank lending posted its fastest growth in almost two years in September, as businesses slowly regained their appetite for loans despite a still elevated interest rate environment.

Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) showed outstanding loans of big banks, excluding their lending with each other, went up by 11 percent year-on-year to P12.4 trillion in September.

That expansion was a tad faster than the 10.7-percent increase registered in August. The October loan growth was also the briskest pace recorded since December 2022.

Dissecting the BSP’s report, loans handed out to businesses to fund various production activities grew by 9.8 percent in September, from 9.4 percent in the preceding month. This was driven by higher bank lending to sectors like real estate (+14.2 percent) and retail trade (+12 percent).

Consumer loans, meanwhile, grew by 23.4 percent in September, from 23.7 percent in August, mainly due to sustained growth in credit card loans.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the beginning of the rate cutting cycle at home and abroad likely perked up demand for loans.

Last month, the policymaking Monetary Board (MB) chaired by BSP Governor Eli Remolona Jr. cut the benchmark rate, which banks typically use as a guide when charging interest on loans, by a quarter point to 6 percent.

But unlike in the United States where a slowing job market had prompted the US central bank to deliver a jumbo 50-basis point (bp) rate cut, the BSP entered its easing cycle with a modest quarter point reduction last Aug. 15.

To note, monetary policy typically works with a lag, which is currently estimated at nine to 12 months. This means the recent rate cuts could take some time to be fully absorbed by the Philippine economy and reflect on the lending rates of banks.

Recall that Remolona had said a 25-bp cut at the Dec. 19 meeting of the MB was “possible.” But he said an outsized reduction was “unlikely” to happen. Overall, the BSP chief did not rule out the possibility of additional cuts cumulatively worth 100 bps in 2025.