Philippines: BPI says strong enough to absorb rate hikes, but inflation still a threat

MANILA, Philippines — Ayala-led Bank of the Philippine Islands said Monday its balance sheet is strong enough to weather the impact of the Bangko Sentral ng Pilipinas’ rate hikes, although the company said it remains worried about red-hot inflation.

At a press conference, top officials of the 171-year-old bank said they do not expect consumer confidence to be “drastically” hit by tightening monetary policy because the economy is opening up more.

Gibee Go, the bank’s head of consumer banking, reported that home loan releases grew 48% year-on-year while auto loan releases jumped 29% annually based on latest figures from the company. Marie Josephine Ocampo, executive vice president of BPI’s mass retail segment, said total credit card loans have grown 17% on-year. 

“This is a really good sign that consumer spending is back. These initial greenshoots allow us to provide greater traction in the ensuing months as we continue to monitor the impact of interest rates in our loan books,” Go said.

“We don’t think that the increase in interest rates will drastically change demand. Currently, this is very well-situated and we are monitoring this closel,” she added.

Last month, the BSP hiked its key rate by a massive 75 basis points (bps) at an off-cycle meeting, in a bid to rein in rapid inflation and arrest the peso’s slump. The jumbo rate increase was preceded by two rate hikes cumulatively worth 50 bps in May and June. The BSP’s policy rate now stands at 3.25%, back to March 2020 level.

Banks typically use the BSP’s policy rate as a benchmark when charging interest for loans, so the central bank’s aggressive action was meant to discourage credit activity to rein in consumer demand that’s stoking inflation. 

It could take a while before the economy feels the impact of the BSP’s tightening moves. In the Philippines, it may take between 9 to 12 months for the BSP’s policy actions to fully work their way into the financial system.

That said, banks like BPI have yet to see the impact of the rate hikes on their loan books, but Jose Teodoro Limcaoco, BPI president and CEO, said the company is closely monitoring inflation, which has been soaring to near 4-year highs.

“We have been watchful of inflation and surprises from the international front, particularly on the supply side. For me, we should watch inflation as it may dampen consumer confidence and watch where interest rates might go,” Limcaoco said.

“So that’s what keeps me awake at night,” he added. — Ian Nicolas Cigaral