Faster credit growth seen amid rate easing

MANILA, Philippines — Credit growth is expected to pick up this year amid the continued drop in interest rates due to the inflation downtrend, according to Dutch financial giant ING Bank.

Nicholas Mapa, economist at ING Bank Manila, expressed hope that the projected 75 basis points rate cut by the Bangko Sentral ng Pilipinas (BSP) this year would jumpstart corporate lending.

Mapa said the sustained lending to the auto sector may help boost the performance of capital formation, which recorded a decline in the second quarter.

“With households back to their voracious spending patterns, government spending back online, the Philippines will only be able to chase six percent growth if the stalwart pillar of capital formation gets a nice jumpstart from BSP’s policy easing,” Mapa said.

Commercial bank lending grew by 11.1 percent in July, a slight improvement from the 10.5 percent expansion in the previous month.

The BSP has so far slashed interest rates by 50 basis points due to easing inflation and slower-than-expected gross domestic product (GDP) growth in the first half.

“One concerning trend was that bank lending to corporates was kept at single digit growth for a second month in a row, the first time commercial bank lending slid to single digit growth for the entire data series dating back to 2014,” he said.

Last year, the central bank lifted rates by 175 basis points to prevent inflation from spiraling out of control. Inflation accelerated to 5.2 percent from 2.9 percent in 2017 and exceeded the BSP’s two to four percent due to elevated oil and food prices as well as weak peso.

“BSP’s heavy-handed rate hikes in 2018 to quell above-target inflation may have done its job in snuffing out inflationary pressure, but likely at the cost of economic activity as July commercial bank lending remaining flat at 9.8 percent for July,” the economist said.