BSP defends low loan-to-GDP ratio

MANILA, Philippines - Philippine banks have not contributed enough to economic growth compared to some of their Southeast Asian counterparts, but regulators and bank officials were quick to defend lenders by saying financial resources have diversified.

As of the third quarter of last year, universal and commercial bank loans as a proportion of gross domestic product (GDP) hit 31.55 percent, Bangko Sentral ng Pilipinas (BSP) figures showed.

Loan-to-GDP ratio measures the amount of bank loans vis-à-vis economic output. This is a gauge of how much banks — and their lending activities — have contributed to economic growth, in general.

According to data from the International Monetary Fund (IMF), the Philippines’ loan-to-GDP ratio in 2011 settled at 32.15 percent, behind those of other countries in the Southeast Asian region such as Malaysia’s 113.5 percent and Singapore’s 451.03 percent.

The country however beat Indonesia, the region’s largest economy, which had a 30.01-percent ratio in 2011, IMF data further showed.

Sought for comment, BSP Deputy Governor Nestor Espenilla Jr. said there is no ideal loan ratio which a certain economy should maintain. He said “it all boils down to whether the risks embedded in a loan are adequately managed.”

“Regardless of what the level of the ratio may turn out to be, if the credit-related risks are not managed well (i.e., liquidity for the lender and capacity to pay for the borrower), then we will have a problem sooner or later,” Espenilla said in an e-mail.

Despite a low loan ratio, local banks have continuously posted double-digit loan growth since January 2011 while keeping their books in check. Latest BSP figures reflected a 14-percent rise in loans as of November to P3.134 trillion. Only two percent of which are considered sour or unpaid 30 days after due date.

Antonio Moncupa Jr., chairman of the open market committee of the Bankers Association of the Philippines, stressed that “it takes two to tango” and that it is not only a question of having historic low interest rates, but also more borrowers.

To support growth, BSP slashed policy rates by a total of 100 basis points to bring them to new-record lows of 3.5 percent and 5.5 percent. At that level, banks could provide cheap credit to finance economic activity.

“We are already trampling each other in the fierce competition for available borrowers and we are still not lending enough? We are driving loan pricing too low and we are not lending? Banks are here to lend,” Moncupa said in a separate e-mail.

For his part, Espenilla stressed there are now more avenues to raise funds, which he considers good news. He pointed to corporate bond issuances that “have risen sharply” throughout the years. As of end-October last year, bond issuances amounted to P237.4 billion, up 34 percent.

Moncupa described this as a “very healthy level” of borrowings on the part of the corporations, which may have seen the affordability of going into the capital market than tapping the banks for funding. Benchmark Treasury bill rates have gone down below one percent in recent weeks.

Aside from this, Espenilla said tie-ups among companies to finance big-ticket projects, such as infrastructure is also a possibility. In this way, project financing will way be easier without the need to ask bank financing.

“Putting all of these together, the loan-to-GDP numbers may turn out differently,” the deputy governor said.