Strong growth in bank lending seen in next 4 yrs

MANILA, Philippines—International financial services firm UBS expects a significant expansion of credit in the Philippines over the short to medium term, citing favorable business sentiment that is seen to boost investments and drive demand for bank loans.

In a paper on the Philippines, the research arm of UBS said that after real credit growth in the country had been nearly stagnant from 2003 to 2009, bank loans had started to rise significantly to support investment initiatives of enterprises.

This growth is expected to continue given the much-improved business confidence, it added.

“Local business confidence is at a decade high,” UBS Investment Research said.

This confidence is actually being matched by investment commitments gathered by concerned government agencies from potential foreign investors, it added.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that outstanding loans from universal and commercial banks in the country stood at P2.76 trillion as  of the end of February, up by 18 percent from P2.34 trillion in the same period last year.

UBS Investment Research said credit growth was seen to remain healthy over the next few years also because there was adequate supply of liquidity from banks that could meet rising appetite for loans and investments.

For instance, it said, loans-to-deposit ratio of banks in the country stood below 80 percent, the lowest in the Southeast Asian region. In some areas in the region, the ratio is well above 100 percent.

Moreover, the ratio of total outstanding loans to the economy’s output (credit-to-gross domestic product ratio) stands at 38 percent which, it said, was deemed moderate.

UBS Investment Research also said the infrastructure projects lined up under the Public-Private Partnership (PPP) program of the government were expected to further boost demand for bank loans.

The local banking industry recently expressed willingness to support PPP projects, saying there was enough liquidity to support the funding needs of investors in those projects.

Under the PPP program, the government hopes to get private companies to invest in public infrastructure projects. There are 17 PPP projects lined up for this year and these were estimated to cost P206 billion, it noted.

UBS Investment Research said the low interest rates environment in the country had been encouraging businesses to borrow more.

“The low interest rate environment … is part of a backdrop that should re-enforce the acceleration of credit growth,” it said.

The key policy rates of the Bangko Sentral ng Pilipinas, which influence bank lending rates, are currently at historic lows of 4 and 6 percent for overnight borrowing and lending, respectively.