Policy rate cuts to boost credit growth

A rate cut by the Bangko Sentral ng Pilipinas (BSP) in the third quarter would spur growth in lending among financial institutions, the top official of FinTech Alliance.Ph said.

“I think the industry would anticipate that the favorable policy adjustments would come in sometime third or fourth quarter this year, and this would definitely further redound to the benefit of our consumers,” FinTech Alliance.Ph Chairman and Rizal Commercial Banking Corp. (RCBC) Executive Vice-President and Chief Innovation and Inclusion Officer Angelito “Lito” M. Villanueva told reporters on the sidelines of an event on Wednesday.

Monetary policy easing would help borrowers “further optimize or leverage on their credit,” he added.

Mr. Villanueva said lending is expected to be one of the drivers of financial institutions’ growth this year, which could spill over to the broader economy.

“[It] would have the most revenues and, of course, impact, considering that we are even promoting access to credit, especially for MSMEs (micro, small, and medium-sized enterprises),” he said.

Rate cuts are seen to make lending easier, Credit Information Corp. (CIC) President and Chief Executive Officer Ben Joshua A. Baltazar said at the same event on Wednesday.

“The way it works is if interest rates go down, then the cost of money goes down — so lending becomes easier,” he told reporters.

However, a policy rate cut in itself won’t help drive lending growth significantly, he said.

“We don’t think that it will have a primary or outsized effect on credit,” Mr. Baltazar said. “Credit will still be driven primarily based on the needs of borrowers, the general projection of lenders as to the market, the likelihood of repayment, and alternative ways to park their money.”

BSP Governor Eli M. Remolona, Jr. this month said the Monetary Board may kick off its easing cycle by the second semester, with a 25-basis-point (bp) cut possible as early as their Aug. 15 meeting and one or two rate cuts expected this year.

This would mean that they could ease ahead of the US Federal Reserve, which they expect to begin cutting rates by September, Mr. Remolona said.

The Monetary Board this month kept its policy rate at a 17-year high of 6.5% for a fifth straight meeting following cumulative hikes worth 450 bps from May 2022 to October 2023 to help bring down elevated inflation.

Finance Secretary and Monetary Board member Ralph G. Recto on Monday said the central bank could reduce the policy rate by as much as 150 bps in the next two years, adding that the BSP has room to cut starting next quarter.

Meanwhile, digital payments could also help drive economic growth, Mr. Villanueva said.

“Amongst the financial services, payments would have the biggest volume,” he said. “We’ve seen exponential growth of the payments volume via InstaPay and PESONet.”

This is why FinTech Alliance.Ph seeks to ensure “responsible and responsive” lending, insurance, investments, and savings, he said.

“That’s why we support these initiatives of various fintech players on creditworthiness or credit scoring, education on credit risk, and how we can further promote financial education and digital literacy,” Mr. Villanueva said.

“I think we’re seeing very positive indicators that would really propel the country to greater heights,” he added.

Philippine gross domestic product (GDP) expanded by 5.7% in the first quarter, faster than 5.5% in the previous quarter but slower than 6.4% a year ago.

This was below the government’s full-year growth goal of 6-7%.

Financial and insurance activities contributed 1.1 percentage points to last quarter’s growth.

Transactions done via payment gateways InstaPay and PESONet hit PHP 3.81 trillion as of end-March, latest BSP data showed, jumping by 32.8% from PHP 2.87 trillion in the same period a year prior.

In terms of volume, transactions coursed through the clearing houses soared by 69.5% year on year to 309.3 million as of March from 182.5 million.

The central bank wanted 50% of the total volume and value of retail transactions done online by the end of 2023.

The BSP earlier said they are confident they met the target amid growing use of e-wallets and online banking platforms.

In 2022, the share of online payments in the total volume of retail transactions rose to 42.1% from 30.3% a year earlier, central bank data showed. — B.M.D. Cruz