By Keisha B. Ta-asan, Reporter
BANK LENDING GROWTH slowed to its lowest in nearly two years in August as high borrowing costs dampened demand for loans.
Outstanding loans issued by big banks expanded by 7.2% year on year to P11.06 trillion in August, based on preliminary data from the Bangko Sentral ng Pilipinas (BSP) released on Wednesday.
The growth in August eased from the 7.7% print in July and was the slowest in 20 months or since 4.8% in December 2021. August was also the fifth straight month that loan growth eased.
Month on month, outstanding loans disbursed by big banks grew by 0.6%.
“Looking ahead, the BSP will continue to ensure that domestic liquidity and lending dynamics remain consistent with its price and financial stability mandates,” BSP Governor Eli M. Remolona, Jr. said in a statement.
Nicholas Antonio T. Mapa, a senior economist at ING Bank N.V. Manila, said bank lending growth continued to moderate due to elevated borrowing costs.
The BSP’s key policy rate has been at a near 16-year high of 6.25% since its March 23 meeting. The BSP has hiked borrowing costs by 425 basis points from May 2022 to March 2023.
“Loans to productive activities are now at the 5% level suggesting investments are slowing. This suggests that rate hikes have already impacted economic growth both in the near term and the medium term as productivity is set to slow,” Mr. Mapa said.
Based on BSP data, loans for productive activities grew by 5.5% to P9.58 trillion in August, slowing from 6.2% in July.
Annual loan growth was recorded in several sectors such as real estate (5.7%), electricity, gas, steam, and air-conditioning supply (9%), wholesale and retail trade and repair of motor vehicles and motorcycles (7.1%), information and communication (10.7%), and financial and insurance activities (6.1%).
Meanwhile, there was an annual decline in loans for manufacturing (-3.7%) and education (-8.9%) sectors.
Total loans to residents also jumped by 7.2% to P10.75 trillion in August from P10.03 trillion a year earlier. However, growth was slower than 7.7% seen in July.
China Banking Corp. Chief Economist Domini S. Velasquez said some sectors remain resilient despite the high interest rate environment.
“For example, businesses engaged in utilities, transport and storage, ICT (information and communication technologies), and other support services took out more (loans) as the outlook for these sectors remains generally positive despite a moderation in economic activities,” she said.
Ms. Velasquez noted the services industry, especially those involved in tourism, will likely outperform as well.
“Consumer lending is the only thing supporting bank lending as households have no choice but to accept higher rates which in turn will impact on disposable income and eventually all-important household spending,” Mr. Mapa said.
Consumer credit jumped by 22.7% to P1.17 trillion from P950.8 billion a year ago. This was slightly faster than the 22.6% in July.
Credit card loans expanded by 29.7% year on year in August, salary-based general purpose consumption loans grew by 17.7%, and motor vehicle loans rose by 10.9%.
“Moving forward, we expect bank lending to slow down some more until interest rate conditions improve,” Ms. Velasquez added.
M3 GROWTH PICKS UPDespite the continued slowdown in bank lending growth, money supply picked up in August, based on preliminary BSP data also released on Wednesday.
M3 — which is considered as the broadest measure of liquidity in an economy — rose by 6.8% to P16.5 trillion in August. This was faster than the 5.7% growth in July.
Month on month, M3 rose by 1.6%.
Domestic claims increased by 9.1% in August, faster than the 8.9% expansion in July.
Net claims on the central government rose to 14.7% in August, faster than 12.5% a month prior, mainly driven by the continued borrowings of the National Government.
Meanwhile, claims on the private sector went up by 7.3% in August, but slower than the 8.2% growth a month ago. The growth was driven by continued expansion in bank lending to nonfinancial private corporations and households.
Net foreign assets (NFA) in peso terms increased by 3.2% in August, a turnaround from the 2.6% decline a month earlier.
“The BSP’s NFA grew by 3.2% in August after contracting by 0.5% in the previous month. Similarly, the NFA of banks went up on account of lower bonds payable,” Mr. Remolona said.
“Looking ahead, the BSP will continue to ensure that domestic liquidity conditions are in line with its price and financial stability objectives,” he added.