Lower interest rates have yet to be reflected on banks’ lending, but the easing central bank target reverse repurchase (RRP) rate continues to drive demand for loans, a central bank official said.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Zeno Ronald Abenoja noted the sustained increase in bank lending activities in both productivity and households’ loans.
“The BSP’s monetary policy easing cycle will continue to support bank lending,” he told Malaya Business Insight in a text message.
This may take a while since monetary policy transmission has a lag period of six to eight months. The Monetary Board, central bank’s policy-making arm, has reduced the policy rate by a cumulative 150 basis points (bps) since August 2024. BSP officials have signaled one more rate cut in October or December, and possibly another 25 to 50 bps reduction in 2026.
Abenoja said bank lending rates do not as yet reflect the rate cuts.
“We have yet to observe the full impact of our policy rate cuts on lending rates, as monetary policy operates with a lag. Nevertheless, banks continue to report stable loan demand from both businesses and households,” he said.
On the demand side, household consumption continued to drive demand, supported by lower interest rates, a moderating inflation, and stable labor market conditions. This translates to increased spending on food and non-alcoholic beverages, transport, miscellaneous goods and services, restaurants and hotels, and education, among others.
Expansion in corporate lending
The BSP, in its latest Monetary Policy Report, said the sustained credit flows to the country’s key industries provide crucial funding for economic activity.
As shown by the June and July data, business and consumer loans have been consistently posting double-digit growth rates, such as in real estate; electricity, gas, steam, and air-conditioning supply; financial and insurance activities; and transportation.
In July, banks’ outstanding loans expanded by 11.8 percent year-on-year to P13.57 trillion. This was a slower pace of growth compared with 12.1 percent in June.
Data showed productivity loans grew 10.8 percent to P11.49 trillion in July, slower than 11.1 percent in June.
On the other hand, consumer loans amounted to P1.76 trillion, up by 23.6 percent year-on-year. In June, this segment grew by a faster 24 percent. Consumer loans consist of credit card, motor vehicle and general lending.
Abenoja said the quality of loans is manageable, as banks provide adequate provisions in case of loan defaults.
“Non-performing loans remain manageable, which augurs well for overall lending activity,” he said.
The banking sector’s gross NPL ratio rose to an eight-month high of 3.4 percent in July, despite steady credit growth.
Total NPLs, which are loan accounts whose principal or interest is unpaid for 30 days or more, rose 5.4 percent to P535.45 billion from P508.11 billion in the same period last year.
The industry loan portfolios likewise grew by 11 percent to P15.77 trillion from P14.2 trillion.
Top banks in loan size
The SM Group’s banking arm, BDO Unibank Inc., is the country’s largest lender as of end-March data from the BSP. BDO reported net loans of P3.168 trillion during the period.
Ayala-led Bank of the Philippine Islands comes as the second biggest in terms of net loans at P2.255 trillion, followed by the Ty family-owned Metropolitan Bank and Trust Co., with P1.55 trillion; state-controlled Land Bank of the Philippines with P1.511 trillion; and China Banking Corp. with P805.345 billion, another Sy-owned bank.
The other five banks in the top 10 are Rizal Commercial Banking Corp., Philippine National Bank, Security Bank Corp., Development Bank of the Philippines, and Union Bank of the Philippines.
Steady loan demand
The BSP expects loan demand to be strong in the coming months, supported by low and stable inflation, as well as a further easing of the benchmark borrowing rate.
Based on a recent BSP survey of banks’ lending standards, about 71.4 percent of banks said demand for business loans will continue to be stable in the third quarter.
The BSP said banks expect loan demand to remain steady because of the anticipated rise in customer inventory funding needs, strong accounts receivable financing demand, and favorable economic conditions.
