Banks’ loans from Bangko Sentral up by 75%

Loans secured by banks from the Bangko Sentral ng Pilipinas surged in the first two months of the year, as the historic-low interest rates encouraged borrowing activities.

Banks are expected to use the additional liquidity to serve the growing demand for credit from both corporate and individual borrowers.

Official data showed that peso-denominated loans extended to banks through the rediscounting facility of the BSP had reached P8.1 billion in January to February, up by 75 percent from P4.63 billion in the same months last year.

Dollar-denominated loans extended under the same facility reached $34.3 million, up by 72 percent from P19.9 million.

The rediscounting facility of the BSP is intended to support lending operations of banks. The amount extended to a borrowing bank is the discounted value of collectibles that serve as collateral.

The interest rates on the peso- and dollar-denominated loans stood at record lows of 3.5 percent and 0.2 percent, respectively.

The former was set equal to the BSP’s key policy rate, which hit an all-time low last year following a series of rate reductions by the central bank’s Monetary Board.

The rate cuts were meant to make loans cheaper, thus encourage consumers and enterprises to borrow. Policymakers said boosting domestic consumption and investments, which were aided by loans, would partly shield the Philippine economy from the adverse effects of global economic problems.

Last year, the Philippines expanded by  6.6 percent, exceeding targets, despite a weak global economy.

For this year, the government expects the economy to grow by 6 to 7 percent.

Officials said the banking sector would continue to support economic growth through lending. The BSP and industry players expect bank lending to post double-digit growth this year.

Officials said the substantial increase in loans tapped by banks from the BSP signaled the banks’ intention to further boost their lending businesses. They said appetite for lending among banks remained significant given the favorable outlook on the economy.

The BSP earlier reported that outstanding loans from universal and commercial banks reached P3.24 trillion as of the end of 2012, up by 16.2 percent from P2.79 trillion a year ago.

In the meantime, robust lending activities in the country over the past few years have elicited concerns that the Philippine might be facing the risk of overheating.

The BSP, however, shrugged off these concerns, saying there remained a huge room for credit expansion in the country.

BSP Governor Amando Tetangco Jr. earlier said that considering that banks were starting with a low base, they had the flexibility to maintain double-digit growth in lending without causing inflationary problems.

Credit-to-gross domestic product ratio in the Philippines, Tetangco said, stood at only about 30 percent (credit refers to outstanding loans from financial institutions). In some emerging economies, he said, the ratio exceeds 100 percent.