Lending by Philippine banks tracked double-digit growth further at more than 11 percent in November, seen by analysts as the fastest rise in two years and growing further this year amid lower borrowing rates and reserve requirements that have released P400 billion into the financial system.
Data from the Bangko Sentral ng Pilipinas (BSP) showed outstanding loans granted by universal and commercial banks expanded by 11.1 percent to P12.675 trillion in November from a year earlier, compared with a 10.6-percent year-on-year increase in October.
On a month-on-month seasonally-adjusted basis, outstanding loans rose 1.0 percent, the BSP said.
The latest bank lending growth rate “is the fastest in nearly two years, or since December 2022,” Michael Ricafort, RCBC chief economist, said. “This is a good sign for the economy.”
Borrowers profile
Outstanding loans to residents swelled 11.3 percent, while loans to non-residents grew at a much slower rate of 3.8 percent.
Loans for production activities went up by 9.8 percent, due largely to a sustained increase in lending to key industries, such as wholesale and retail trade, repair of motor vehicles and motorcycles by 9.1 percent; electricity, gas, steam and air-conditioning supply by 9.6 percent; and financial and insurance activities by 4.4 percent.
Consumer loans to residents surged 23.3 percent, though slightly lower than the 24 percent recorded in October. Growth here was driven by the increase in credit card and motor vehicle loans, as shown by the data.
Growth-friendly policy rates
Ricafort noted the November bank lending increase was twice faster than the expansion in the country’s gross domestic product (GDP) of 5.2 percent in the third quarter.
Such lending “growth came after the first cut in the BSP’s local policy rates in nearly four years, by -0.25 on August 15, 2024,” Ricafort said.
“This was followed by two more 25-bps cuts in October
and December, bringing the local policy rate to its lowest in two years at 5.75 percent.”
Ricafort said he expects growth in lending to accelerate further “amid an easing inflation trend, which could justify further cuts in local policy rates that could [consequently] lead to lower borrowing costs.”
He also said the latest cut in banks’ RR ratio on October 25 last year injected about P400 billion into the banking/financial system and could fundamentally increase the banks’ loanable funds.
“The BSP signalled possible further RR cuts from the current 7 percent for large banks, with further RR cuts in 2025 and could even be possibly brought down to zero within the term of the (current) BSP Governor,” Ricafort said.
BSP Governor Eli Remolona has signaled more room for the central bank to ease rates as the current rate is viewed as still restrictive.
“Still dovish signals, as the rates are still somewhat restrictive, (though) considered an insurance against risk that inflation might rise again, and thus, (the BSP appears to be) comfortable with baby steps on easing.” Ricafort said.
“The pickup in bank loans growth in recent months could be attributed to improved business and economic conditions, easing inflation trend to the slowest in about two years, GDP growth among the fastest in Asia and as the economy recovers further from the effects of the COVID-19 pandemic.”
“Going forward, lower local interest rates would fundamentally help further stimulate faster growth in demand for credit, which, in turn, would support faster economic growth,” Ricafort added.
Remolona has said the BSP would ensure domestic liquidity and lending conditions were in line with its price and financial stability mandates.