BSP rate hikes start to temper household loan appetite

MANILA, Philippines — Consumer loans grew slower in July, a sign interest rate hikes by the Bangko Sentral ng Pilipinas are slowly increasing bank lending rates, official data showed on Friday.

According to the central bank, outstanding loans by big banks rose 19.6 percent in July to P7.75 trillion, faster than the 19.1 percent recorded in June.

Broken down, growth was driven mainly by credit extended to production activities, which are large in nature and availed by big players such as corporations. Loans to this segment rose 19.7 percent to P6.86 trillion.

In contrast, household loans-- composed of credit card liabilities, salary and auto loans as well other personal credit-- went up slower at 16.9 percent year-on-year to P615.35 billion in July. The expansion was also slower than the 17.8 percent posted in June.

After leaving them untouched for nearly four years, BSP raised interest rates by a total of 100 basis points in May, June and August in a bid to temper inflation running at a nine-year high of 5.7 percent in July.

The rate hikes brought the benchmark overnight borrowing rate to 4 percent from 3 percent originally. Banks typically use the BSP's benchmark rate as basis on charging their loans to consumers.

If any, the effect of the BSP's rate increases was expected to deter bank borrowing due to higher rates. Small consumers like households are most likely to feel the first effect.

Less loans meant lower money supply in the system, which could aid in slowing down inflation, but could also slow economic growth. In a separate report on Friday, BSP said money supply grew 11 percent to P11.8 trillion in July, partly due to "contraction in salary-based general-purpose consumption loans and other types of household loans." 

Specifically, salary loans inched down 0.5 percent in July from 5 percent growth in June. Credit card loans expanded 22.9 percent, while auto loan credit slowed to 18.1 percent.

In bigger production activities, loan growth was driven mainly by credit to wholesale, retail and trade as well as auto sectors, which expanded 25.6 percent.

Double-digit loan growth was also recorded on the financial and insurance activities (35.9 percent); real estate activities (15.9 percent); manufacturing (19.0 percent); electricity, gas, steam and airconditioning supply (9.7 percent); and construction (37.6 percent).

Bank lending to other sectors also increased during the month except in agriculture, forestry and fishing, which dropped 7.1 percent, and ainistrative and support services activities that contracted 52.1 percent.