Interest rates on consumer loans continue to drop

Interest rates on housing, auto, business and other types of bank loans have fallen by an average of 62 basis points since the start of the year to hit record lows.

The low-interest-rate environment encouraged consumers and enterprises to borrow more.

The Bangko Sentral ng Pilipinas said the declining interest rates had helped fuel consumption and investments over the past months and should continue boosting economic activities over the short term.

BSP Deputy Governor Diwa Guinigundo said on Friday that the year-to-date “pass-through” rate stood at 62 percent. This, he said, indicated that the policy rates adjustments made by the central bank were indeed influencing bank lending rates.

“Pass-through” rate is the proportion of the drop (or increase) in the average bank lending rates to the drop (or increase) in the central bank’s key policy rates.

Since the start of the year, the BSP has cut its key policy rates by a total of 100 basis points. The rates currently stand at record lows of 3.5 and 5.5 percent for overnight borrowing and lending, respectively.

Guinigundo said the results of a BSP survey showed that bank lending rates had dropped by an average of 62 basis points since the start of the year, reflecting a 62-percent pass-through rate.

He said bank lending rates were expected to continue falling in the months ahead, explaining that there normally was a lag in the reflection of interest-rate cuts by the BSP on commercial interest rates.

“The effects of the cumulative 100-basis point cut in the policy rates will continue to work their way through the economy,” Guinigundo said.

The BSP had slashed its key policy rates four times this year, each by 25 basis points, with the aim of boosting demand for loans and supporting more spending and investment activities.

There was a pressing need to boost domestic demand to support a decent growth of the Philippine economy and export earnings, which were being dampened by economic problems of the United States and the eurozone, it said.

The BSP also said increase in credit activities as a result of low interest rates in the Philippines aided the robust growth of the domestic economy so far in the year.

The Philippine economy grew by 7.1 percent in the third quarter and by an average of 6.5 percent in the first three quarters of the year from a year ago, thus becoming one of the fastest-growing economies in Asia.

Growth in the economy came as bank lending posted a double-digit growth rate.

The BSP earlier reported that the outstanding loans extended by universal and commercial banks amounted to P3.08 trillion as of the end of October, up by 15.8 percent from P2.79 trillion as of the same period last year.

According to the BSP, growth in bank lending can be attributed to the rise in demand for credit from consumers and corporate borrowers.