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Higher interest rates drag bank lending growth

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Bank lending growth in January slowed to 10.4 percent from 13.7 percent in December amid the rising interest rates and elevated inflation.

Latest data from the Bangko Sentral ng Pilipinas showed that on a month-on-month seasonally-adjusted basis, the outstanding universal and commercial bank loans, net of reverse repurchase placements, were broadly unchanged.

Outstanding loans to residents rose 10.2 percent in January, following a 13.5-percent increase in the previous month.

Outstanding loans for production activities grew by 9.2 percent in January from 12.4 percent in December, mainly due to the lending activities of major sectors including electricity, gas, steam and air conditioning supply (12.7 percent); wholesale and retail trade, repair of motor vehicles and motorcycles (10.4 percent); manufacturing (10.3 percent); information and communication (21.4 percent); and real estate activities (3.5 percent).

Consumer loans to residents grew by 20.3 percent in January, slower than 25.1 percent in the previous month.

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Outstanding loans to non-residents expanded by 16.8 percent in January from a 19.9-percent increase in the previous month.

“The slower bank loans growth [was] also partly due to the rising trend in US global/local interest rates in recent months, as well as higher inflation,” Rizal Commercial Banking Corp. chief economist Michael Ricafort said in a comment.

He said higher interest rates and inflation led to higher borrowing costs for consumers, businesses and other institutions that, in turn, “partly slowed down the demand for loans, as many central banks worldwide and locally battle elevated inflation.”

The policy-setting Monetary Board raised the benchmark interest rate by 50 basis points to 5.5 percent before the end of 2022 to prevent the second-round effects of inflation and defend the peso against the greenback.

Inflation surpassed the target range of 2 percent to 4 percent last year and accelerated to a 14-year high of 8.7 percent in January 2023.

The board again raised the key rates by another 50 basis points to 6 percent on Feb. 16, 2023.

Ricafort said the possible easing of inflation in the coming months would, in turn, help ease interest rates and borrowing costs.

The BSP said the brisk credit growth and adequate liquidity would 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.

Domestic liquidity or the money supply circulating in the financial system also posted a slower 5.5 percent year-on-year expansion to about P16.0 trillion in January 2023 from the 6.7-percent growth in December 2022.

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