Bank lending grows in January as borrowing costs stay low

MANILA, Philippines — Bank lending started the year on a high note as it continued its nascent climb, perking up hopes that the country's recovery from the pandemic could be sustained.

Excluding interbank lending, outstanding loans issued by big banks rose 8.5% year-on-year in January to P9.7 trillion, the Bangko Sentral ng Pilipinas reported Monday.

The increase was markedly better from the 4.8% growth in December last year. Month-on-month, credit grew by 3%.

In turn, more money circulated in the domestic economy. A separate BSP report showed M3, a measure of money supply, expanded 9.8% year-on-year in January to P15.3 trillion, faster than 7.3% annual growth in December 2021. Month-on-month, M3 increased by 2.8%.

This reinforced a positive narrative for the BSP as the economy is now experiencing the effects of its aggressive easing episode back in 2020, which brought the key rate to record-low 2%.

Sought for comment, Michael Enriquez, chief investment officer at Sun Life Investment Management and Trust Corp, expects banks to lead the way for economic growth.

"We expect the banks to take the lead in the recovery story as we expect lending growth as well as non-performing loans to continue to go down," he said in a Viber message.

Central bank data showed much of the lift came from loans extended to production activities, which surged 9.6% year-on-year in January. Under this segment, lending to businesses engaged in information and communication activities posted the sharpest annual growth at 31.4%.

Other segments of credit showed hopes of recovery as well. Consumer loans finally landed in the green in January, eking out 0.1% growth in January that snapped 14 months of decline.

Nicholas Mapa, senior economist at ING Bank in the Philippines, said the BSP’s rate cuts from 2020 continue to work through to the economy, with lending “getting an extra boost from improving economic conditions.”

For Jun Neri, lead economist at Bank of the Philippine Islands, the lower Alert levels "should actually translate to faster loan growth as more businesses will need more working capital and possible rebuilding of pared down capacity.” That said, Neri believes "interest rates were cut too low and need to be raised already without affecting loan growth."

READ: Metro Manila, 38 other areas under loosest Alert Level 1 from March 1

Meanwhile, Mapa said a potential flare up in inflation and stark peso weakness could likely prod the BSP to tighten by the second quarter, which could cap lending growth as early as the fourth quarter.

For now, the BSP is looking at economic conditions to determine the right timing for its pandemic exit strategy.

"Nevertheless, stronger signs of recovery in overall economic activity will allow the BSP to carefully plan for the eventual normalization of its pandemic-related interventions when conditions warrant, in line with its price and financial stability mandates," the central bank said.