Loan growth slows in April amid BSP tightening

Lending growth slowed in April due to a high base and as the central bank’s rate hikes made their way through the financial system, and even as liquidity expanded faster that month.

Outstanding loans by big banks grew by 9.7% to PHP 10.86 trillion in April, slower than the 10.2% expansion in March and the 10.1% seen in April 2022, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Meanwhile, big banks’ loans net of reverse repurchase (RRP) placements with the BSP inched up by 0.6% from a month earlier.

“The sustained expansion in bank lending activity suggests that domestic liquidity remains sufficient to support economic activity,” BSP Governor Felipe M. Medalla said in a statement.

Oxford Economics Japan Assistant Economist Makoto Tsuchiya said in an e-mail that the slowdown in credit growth was likely due to a high base.

“The slowdown in credit growth can be partly attributed to base effects, as you can see that the annual growth was picking up throughout last year given gradual economic reopening. But we estimate that the sequential growth has stalled since late last year, as the initial demand from economic reopening faded,” he said.

Meanwhile, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the aggressive policy tightening by the BSP since May last year has affected bank lending growth.

“Loans to productive sectors show slower pace of expansion again, which points to slower capital formation which should cap productive capacity down the line,” Mr. Mapa said.

The BSP raised the benchmark interest rate by 425 basis points from May 2022  to March 2023 to tame inflation, with the key rate now at 6.25%.

The Monetary Board last month paused its tightening campaign after hiking for nine straight meetings on expectations that inflation would continue to ease.

BSP data showed outstanding loans to residents, net of RRPs, eased by 9.6% to PHP 10.55 trillion in April from 10.2% in March and 10% a year ago.

Credit for production activities declined by 8.3% to PHP 9.47 trillion in April from 9% in March and 10.3% in the same month in 2022.

Year on year, more loans were extended for electricity, gas, steam, and air-conditioning supply (12.4%), wholesale and retail trade, and repair of motor vehicles and motorcycles (10.3%), manufacturing (9.3%), information and communication (19%), and real estate activities (4.5%).

Meanwhile, Mr. Mapa said consumer credit is still showing faster gains despite higher borrowing costs.

“This could mean that households are resorting to consumer credit at higher rates to finance basic goods and services. The increase in rates may have also translated to higher consumer loans receivable as households find it more difficult to service debt on time given constraints on higher costs,” he said.

Consumer loans to residents increased by 22.3% to PHP 1.08 trillion in April, a tad faster than 21.8% in March. This was attributed to year-on-year rise in credit card loans (29.9%), motor vehicle loans (1.9%) and salary-based general purpose consumption loans (56.2%). 

Meanwhile, outstanding loans to nonresidents excluding RRPs expanded by 12.2% to PHP 319.31 billion in April, slower than the revised 13.1% growth in the previous month.

Oxford Economics’ Mr. Tsuchiya said loan growth is expected to slow further this year amid lower demand from households and businesses.

“Given slowing global economy and lower demand for Philippines goods exports, businesses will likely remain cautious in expanding their production capacity,” he said.

Mr. Tsuchiya cited a BSP survey that showed bank officers said demand for loans remained unchanged for the last three quarters.

“Households will feel less pressure to borrow as initial pent-up demand fades, inflation edges down, and interest rate remains high. That said, higher unemployment rate could keep borrowing high, as consumers borrow out of necessity,” he said

M3 growth
Despite slower credit growth, domestic liquidity rose by 6.6% annually to PHP 16.3 trillion in April, the BSP said in a separate statement, faster than the revised 6.2% expansion in March. Month on month, it rose by about 0.5% from March.

Money supply, or M3, is considered as the broadest measure of liquidity in an economy.

In April, domestic claims rose by 11.9%, slightly slower than the 12.4% in March.

Net borrowings of the central government expanded by 20.1% in April, declining from the revised 21.1% rise in the prior month.

Net claims on the private sector grew by 9.7% in April, unchanged from March, due to the sustained expansion in bank lending to nonfinancial private firms and households

Meanwhile, net foreign assets (NFA) declined by 0.2% in April, improving from the revised 3.9% contraction in March.

“The NFA of banks declined mainly on account of higher bills payable. Meanwhile, the BSP’s NFA position expanded by 2.5% in April after contracting in the previous month,” Mr. Medalla said.

“Looking ahead, the BSP will continue to ensure that domestic liquidity conditions remain consistent with the prevailing stance of monetary policy, in line with the BSP’s price and financial stability objectives,” he added. — By Keisha B. Ta-asan