May loan growth slowest in over a year

Bank lending in May grew at its slowest pace in over a year, reflecting the impact of high interest rates, while domestic liquidity expanded by 6.6% in the same month.

Data from the Bangko Sentral ng Pilipinas (BSP) released late Friday showed outstanding loans by big banks, net of reverse repurchase (RRP) placements with the central bank, expanded by 9.4% to PHP 10.9 trillion in May from PHP 9.97 trillion a year ago. 

However, loan growth in May was slightly weaker than the 9.7% expansion in April. This is the slowest credit growth in 15 months or since the 8.9% print in March 2022.

Month on month, outstanding universal and commercial bank loans, net of RRPs, increased by 0.7%, the BSP said.

“The moderation in bank lending activity reflects the impact of the BSP’s cumulative policy rate adjustments,” outgoing BSP Governor Felipe M. Medalla said in a statement.

Since May 2022, the Monetary Board has raised borrowing costs by 425 basis points (bps). The key benchmark interest rate currently stands at 6.25% — the highest in nearly 16 years.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the weaker growth in lending to higher borrowing costs, as it became more expensive for businesses and consumers to obtain loans. This partly slowed the demand for loans, he added.

“Overall bank lending growth seems pretty modest, currently at high single digit combined with around 11.5% nominal growth for the economy pretty much reduces the probably of a sharp spike in nonperforming loans (NPLs),” Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said.

Mr. Neri noted that with high interest rates, “the probability of a surge in NPLs is much lower than when rates were zero or negative.”

The latest central bank data showed the banking industry’s gross NPL ratio increased to 3.41% in April from 3.33% in March, but still lower than 3.93% a year earlier.

“In general, a positive real interest rate environment helps us avoid excessive risk-taking among lenders and borrowers,” Mr. Neri added.

Based on BSP data, outstanding loans to residents, net of RRPs, rose by 9.3% in May, slower than the 9.6% print in April.

Borrowings for production activities rose by 7.9% to PHP 9.5 trillion in May, easing from 8.3% in the previous month.

This was driven by the faster expansion in loans for professional, scientific and technical services (53.8% in May from -40.6% in April), administrative and support services (36.3% from 34.3%), electricity, gas, steam, and air-conditioning supply (14.1% from 12.4%), and real estate activities (5.5% from 4.5%).

Slower month-on-month growth was seen in loans for manufacturing (0.6% in May from 9.4% in April), wholesale and retail trade, repair of motor vehicles and motorcycles (8.6% from 10.3%), information and communication (15.9% from 19%), and agriculture (3.7% from 4.5%)

BSP data also showed a decline in arts, entertainment, and recreation (-7.4% from 4.9 in April) and education (-6.8% from -4.7%).

Meanwhile, consumer loans to residents rose by 22.7% to PHP 1.09 trillion, slightly easing from the 22.3% print in April.

Credit card loans jumped by 29% in May, a tad weaker from the 29.9% in April. Salary-based general purpose consumption loans also eased to 52.9% from the 56.2% in the previous month. 

Borrowings for motor vehicles expanded by 4.1%, improving from the 1.9% seen in April.

Outstanding loans to nonresidents also rose at a faster rate of 13.2% in May from the 2.2% print in the previous month.

Mr. Ricafort said measures to further reopen the economy would boost demand for loans.

“Businesses and industries can also plan better and become more decisive with new investments and expansion plans, which entail more demand for loans and other fund-raising activities,” he said.

Cooling inflation may also spur loan demand, he added, especially if the BSP begins cutting policy rates next year.

Steady M3 growth
Despite slower credit growth, domestic liquidity rose by 6.6% annually to PHP 16.3 trillion in May, the BSP said in a separate statement.

This was unchanged from the 6.6% expansion in April. Month on month, liquidity rose by about 0.3%.

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

In May, domestic claims rose by 11.4%, slightly slower than the 11.9% logged in April.

Net borrowings of the central government expanded by 18.3% in May, easing from the revised 20.2% in April.

Net claims on the private sector grew by 9.3% in May, slower than the revised 9.8% in April.

Meanwhile, net foreign assets (NFA) rose by 2.7% in May, a turnaround from the 0.2% contraction in April.

The central bank’s NFA position grew by 4.2% from 2.5% in the previous month, while the NFA of banks declined due to higher bills payable.

“Looking ahead, the BSP will continue to ensure that domestic liquidity conditions remain consistent with the BSP’s price and financial stability objectives,” Mr. Medalla added. — Keisha B. Ta-asan