Credit growth tumbles in January

MANILA, Philippines — Credit growth tumbled for the second straight month to 10.4 percent in January, the slowest in nine months, from 13.7 percent in December as the aggressive rate hikes delivered by the Bangko Sentral ng Pilipinas (BSP) started to bite.

Preliminary data released by the BSP showed the outstanding loans of big banks stood at P10.7 billion in January, P1 trillion higher than the P9.7 trillion recorded in the same period last year.

The BSP said bank lending remained brisk and would help sustain the country’s robust economic growth.

“Brisk credit growth and adequate liquidity will continue to sustain the momentum of economic growth. Looking ahead, the BSP will ensure that liquidity and lending conditions remain in line with its primary mandate of ensuring price and financial stability,” it said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the increase in the outstanding loans of universal and commercial banks in January was the slowest since the 10.1 percent recorded in April last year.

The slower increase, Ricafort said, was due in part to the rising trend in global and local interest rates in recent months as well as higher inflation.

The BSP has so far raised key policy rates by 400 basis points since the start of its tightening cycle in May last year to tame inflation and stabilize the peso.

This brought the overnight reverse repurchase rate to a 16-year high of six percent from an all-time low of two percent.

According to Ricafort, this led to higher borrowing or financing costs for consumers, businesses and other institutions, partly slowing down the demand for loans.

For January, data showed loans to production activities increased at a slower rate of 9.2 percent to P9.37 trillion in January from P8.57 trillion in the same month last year, and accounted for 87.5 percent of the total disbursements.

The increase in disbursements to the real estate sector slowed sharply to 3.5 percent with P2.12 trillion that accounted for 19.9 percent of the total, followed by the wholesale and retail trade, and repair of motor vehicles and motorcycles with a slower increase of 10.4 percent to P1.22 trillion for an 11.4 percent share.

The growth in releases to the manufacturing sector also slowed to 10.3 percent with P1.19 trillion for a share of 11.1 percent, followed by the loans extended to the electricity, gas, steam and air-conditioning supply sector that also eased to 12.7 percent with P1.18 trillion for an 11 percent share.

The BSP said the increase in consumer loans also slowed to 20.3 percent with P1.03 trillion in January, for a 9.6-percent share of the total loans disbursed by big banks.

It was led by credit card loans that jumped by 30.7 percent to P560.38 billion in January from P428.8 billion in the same month last year ahead of the effectivity of the higher cap of three percent per month from two percent implemented by the BSP.

Car loans contracted by 4.4 percent to P324.24 billion from P339.25 billion, but were offset by the 67-percent jump in salary-based general purpose consumption loans to P120.82 billion and the 57 percent surge in other loans to P22.15 billion.

China Bank chief economist Domini Velasquez said both consumer loans and loans for production activities grew at slower paces, likely due to high interest rates and inflation.

“The continued double-digit growth still pointed to robust demand and was likely supported by positive sentiments on the economy’s growth prospects,” Velasquez said.

However, Velasquez warned that loan growth could further soften as the economy is expected to feel the full impact of the BSP’s rate hikes this year.

Going forward, Ricafort said risk factors could be overshadowed by measures to further reopen the economy toward greater normalcy, which fundamentally increased demand for loans amid more jobs, sales, income and other economic activities.

“Possible easing of inflation for the coming months would, in turn, also help fundamentally ease interest rate, thereby also helping spur loan demand and growth,” Ricafort said.