Philippines: Bank lending improves in September despite steeper borrowing costs

MANILA, Philippines — Bank lending posted a double-digit growth in September, continuing to reap the rewards of a reopened domestic economy despite rising borrowing costs, the Bangko Sentral ng Pilipinas reported Monday.

Credit growth jumped 13.4% year-on-year in September, data released by the BSP showed. The increase was faster than the 12.2% annual expansion recorded in the preceding month. 

Month-on-month, credit rose 1.7%. 

At the same time, more money circulated in the domestic economy during the month. A separate BSP also released Monday reported showed M3, the broadest measure of money supply, rose 5% year-on-year in September to P15.4 trillion, albeit slower compared to 6.7% annual growth in the preceding month. 

Domini Velasquez, chief economist at China Banking Corp., noted this continuing trend was a positive development considering the high inflation environment and rising borrowing costs.

“We continue to see almost broad-based growth in lending to industries/productive sectors while consumer loans are holding up remarkably,” she said in a Viber message. 

Credit growth is crucial for an economy that depends on consumption. When bank lending sank in 2020 after lenders tightened their credit standards while borrowers became wary of being saddled with debts, the BSP slashed interest rates to spur loan growth within the consumption-starved domestic economy.

This move paid off, with credit returning to growth in August last year after 8 straight months of contraction. But with inflation spoiling economic growth by crimping consumption anew, the BSP started its tightening cycle in May and had since reversed all the rate cuts it made at the onset of the health crisis.

BSP data showed most of the growth came from loans extended to production activities, which improved 12.3% on-year in September. Lending for real estate activities, manufacturing, information and communication and wholesale and retail trade (including repair of motor vehicles and motorcycles) soared by double digits. 

Consumer loans continued to grow, surging 20.5% year-on-year in September. 

“We think that this shows that pandemic recovery, stability of jobs and assurance of steady income could likely outweigh the crimp on consumption that usually follows when the cost of money becomes more expensive,” Velasquez added.