Bank lending growth hits 2-year high

Bank lending in December expanded at its fastest pace in two years, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Outstanding loans of universal and commercial banks jumped by 12.2% year on year to PHP 13.1 trillion in December from PHP 11.7 trillion in the same period in 2023.

This was the fastest lending growth in two years or since the 13.7% recorded in December 2022.

On a seasonally adjusted basis, big banks’ outstanding loans rose by 1.4% month on month.

Central bank data showed outstanding loans to residents climbed by 12.4% to PHP 12.8 trillion in December, faster than the 11.4% growth in November.

Meanwhile, loans to nonresidents rose by 5.7% to PHP 330 billion during the month, faster than the 3.9% posted in November.

Outstanding loans to residents for production activities expanded by 10.8% to PHP 11.2 trillion in December, faster than 9.8% in the previous month. Loans for production accounted for the bulk (85.4%) of overall lending.

The BSP said the growth was driven by sustained lending in wholesale and retail trade, repair of motor vehicles and motorcycles (10.1%); electricity, gas, steam and air-conditioning supply (14.2%); manufacturing (7.4%); financial and insurance activities (7.4%); and construction (12.6%).

Meanwhile, consumer loans jumped by 25% in December from 23.3% in the previous month. Consumer loan data excluded residential real estate loans.

This was due to the “increase in credit card loans; salary-based general purpose consumption loans and motor vehicle loans,” the central bank said.

BSP data showed credit card loans rose by 29.4% in December from 26.5% a month earlier. Salary-based general purpose consumption loans also picked up by 16.5% in December from 15% in the previous month.

However, growth in loans for motor vehicles eased slightly to 19.5% in December from 19.6% in the previous month.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said loan growth picked up as the BSP began its easing cycle.

The central bank started its rate-cutting cycle in August last year. It reduced borrowing costs by a total of 75 basis points (bps), bringing the key rate to 5.75% by end-2024.

For the coming months, easing inflation well could justify further rate cuts this year and “spur greater demand for loans due to lower financing costs,” Mr. Ricafort said.

A BusinessWorld poll conducted last week showed that 19 out of 20 analysts expect the Monetary Board to reduce the target reverse repurchase rate by 25 bps on Thursday.

BSP Governor Eli M. Remolona, Jr. has said a rate cut is still “on the table.”

For 2025, he signaled the possibility of cutting by a total of 50 bps, noting that 75 bps or 100 bps may be a bit “too much.”

Mr. Ricafort also noted the cut in the reserve requirement ratio (RRR) “could have fundamentally increased the loanable funds of banks.”

The BSP reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%, which took effect last October.

Mr. Remolona has said that the Monetary Board is eyeing to again reduce reserve requirements by 200 bps to 5% this year, sometime in the middle of the year.

“The pickup in bank loan growth in recent months could be attributed to improved business and economic conditions, especially in terms of improved data on employment in recent months,” Mr. Ricafort added.

Money supply

Meanwhile, domestic liquidity (M3) grew by 7.7% in December, the same as November.

M3 — which is considered as the broadest measure of liquidity in an economy — increased to PHP 18.8 trillion as of December from PHP 17.4 trillion a year earlier.

Month on month, M3 inched up by 0.2% on a seasonally adjusted basis.

Data from the BSP showed domestic claims rose by 10.4% during the month, though slower than the 10.8% in November.

“Claims on the private sector grew by 12.2% in December from 11.7% in the previous month with the continued expansion in bank lending to nonfinancial private corporations and households,” the BSP said.

The growth in net claims on the central government eased to 7.2% in December from 9.2% in the previous month due to higher National Government borrowings.

Meanwhile, growth in net foreign assets (NFA) in peso terms also eased to 6% from 9.8% in November.

“The BSP’s NFA expanded by 6.8%, reflecting the increase in gross international reserves relative to a year ago. Meanwhile, the NFA of banks declined on account of higher bills and bonds payable,” it added. — Luisa Maria Jacinta C. Jocson