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Philippines: Loan growth slows in December as interest rate hikes bite
MANILA, Philippines — Banks are now feeling the pinch of higher interest rates as credit growth slowed to 13.4 percent in December from 13.9 percent in November, the Bangko Sentral ng Pilipinas (BSP) said.
Preliminary data released by the central bank showed loans released by universal and commercial banks reached P10.9 trillion in end-2022, which was P1.29 trillion higher compared to the P9.61 trillion recorded in end-2021.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said credit growth in December was the slowest in four months, or since August last year, but still among the fastest pace in nearly three years or since March 2020.
“For the coming months, bank loans and M3 (domestic liquidity) growth could still fundamentally accelerate amid measures to further reopen the economy toward greater normalcy,” Ricafort said.
“The sustained growth in credit activity and ample liquidity will continue to support the recovery of economic activity and domestic demand,” BSP Governor Felipe Medalla said in a statement.
Big banks have been disbursing more loans to borrowers as the country continues to recover from the impact of the global health crisis with the lifting of strict COVID-19 quarantine and lockdown protocols.
The country’s gross domestic product (GDP) growth accelerated to 7.6 percent in 2022, slightly higher than the 6.5 to 7.5 percent target set by economic managers, from 5.7 percent in 2021.
In 2020, the Philippines plunged into recession with a GDP contraction of 9.6 percent as the economy stalled due to strict mobility restrictions to slow the rise in COVID-19 infections.
To boost the economy, the BSP implemented COVID-19 response measures, including slashing interest rates by 200 basis points to an all-time low of two percent and reducing the reserve requirement ratio by 200 basis points to free up more funds for lending in 2020.
As a result, bank lending has been increasing for the past 17 months or since August 2021, after contracting for eight straight months between December 2020 and July 2021 due to the impact of the COVID-19 pandemic.
However, the BSP jacked up interest rates by 350 basis points to a 14-year high of 5.50 percent last year to tame inflation as it quickened to a 14-year high of 8.1 percent in December.
The central bank’s Monetary Board saw the need to tighten aggressively and match the rate increases delivered by the US Federal Reserve as inflation averaged 5.8 percent last year, well above the central bank’s two to four percent target range.
Latest data showed loans to production activities increased at a slower rate of 12.1 percent, to P9.55 trillion in December from P8.52 trillion in December 2021, and accounted for 87.6 percent of the total disbursements.
The real estate sector grew at a faster rate of 13.1 percent, to P2.18 trillion, and accounted for 20 percent of the total disbursements. This was followed by wholesale and retail trade, repair of motor vehicles and motorcycles with an 12.7 percent increase, to P1.27 trillion or a share of 11.6 percent, as well as the manufacturing sector with a 14.9 percent increase, to P1.25 trillion for a share of 11.5 percent.
Likewise, loans extended to the electricity, gas, steam and air-conditioning supply sector climbed at a faster rate of 14.4 percent to P1.2 trillion for an 11 percent share, while credit extended to financial and insurance activities grew at a slower rate of 6.5 percent to P1.03 trillion for a 9.5 percent share.
The BSP reported that consumer loans jumped by 24.8 percent to P1.02 trillion in end-2022 for a 9.4 percent of the total loans disbursed by big banks.
Credit card loans surged by 26.3 percent to P554.31 billion from P438.81 billion despite the decision of the BSP to maintain a status quo on the cap on credit card charges at two percent per month or 24 percent per annum until the end of 2022.
At the start of this year, the Monetary Board raised the ceiling by 100 basis points to three percent from two percent per month or 36 percent per annum from 24 percent per annum.
Auto loans also booked an 11.5 percent increase to P325.37 billion from P291.79 billion, while salary-based general-purpose consumption loans surged by 63.8 percent to P120.72 billion from P73.7 billion.
“Looking ahead, the BSP will continue to take all necessary action to ensure that liquidity and bank lending conditions remain consistent with promoting price and financial stability,” Medalla said.
Source: https://www.philstar.com/business/2023/02/01/2241606/loan-growth-slows-december-interest-rate-hikes-bite