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Bank loans post slower growth on elevated inflation

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The outstanding loans of universal and commercial banks posted a slower growth of 9.4 percent in May from 9.7 percent a month ago, partly due to higher interest rates and elevated inflation, data released by the Bangko Sentral ng Pilipinas released over the weekend show.

On a month-on-month seasonally-adjusted basis, outstanding universal and commercial bank loans, net of reverse repurchase placements or RRPs, increased by 0.7 percent.

“The moderation in bank lending activity reflects the impact of the BSP’s cumulative policy rate adjustments. Looking ahead, the BSP will continue to ensure that domestic liquidity and credit dynamics are in line with its price and financial stability mandates,” BSP said in a statement.

BSP kept the overnight borrowing rate of 6.25 percent in its meeting in the latter part of June 2023, taking into account the continued slowdown in inflation for the past four months from a peak of 8.7 percent in January 2023.

The average inflation in the first five months of 7.5 percent remained way over the target range of 2 to 4 percent. 

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Outstanding loans to residents, net of RRPs, slowed in May at 9.3 percent from 9.6 percent in April. Similarly, outstanding loans for production activities rose by 7.9 percent in May after growing by 8.3 percent in the previous month.

BSP said this was mainly due to the continued increase in loans to major industries, specifically electricity, gas, steam, and airconditioning supply (14.1 percent); real estate activities (5.5 percent); wholesale and retail trade, and repair of motor vehicles and motorcycles (8.6 percent); information and communication (15.9 percent); and financial and insurance activities (7.3 percent).

Consumer loans to residents grew at a slightly faster rate of 22.7 percent in May from 22.3 percent in April due to the increase in credit card, motor vehicle, and salary loans. Outstanding loans to non-residents also went up by 13.2 percent in May from 12.2 percent in the previous month.

Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said the slower growth in bank loans was partly due to the rising trend in US/global/local interest rates in recent months, as well as higher prices/inflation.

He said this led to “higher borrowing/financing costs for consumers, businesses/industries, and other institutions that, in turn, partly slowed down the demand for loans/credit, as many central banks worldwide and locally battled elevated inflation.”

But Ricafort said loan demand could return to double-digit growth levels in the coming months that could lead to faster economic growth.

Meanwhile, domestic liquidity or the money supply circulating in the financial system in May 2023 grew by 6.6 percent year-on-year to about ₱16.3 trillion, the same rate of expansion recorded in the previous month. On a month-on-month seasonally-adjusted basis, M3 increased by about 0.3 percent.

Domestic claims rose by 11.4 percent year-on-year in May from 11.9 percent in the previous month. Claims on the private sector grew by 9.3 percent in May from 9.8 percent (revised) in April, driven by the sustained expansion in bank lending to non-financial private corporations and households. Net claims on the central government also expanded by 18.3 percent in May from 20.2 percent in April owing mainly to the borrowings by the national government.

Net foreign assets (NFA) in peso terms grew by 2.7 percent year-on-year in May following the 0.2-percent contraction in April. The BSP’s NFA position expanded by 4.2 percent in May after increasing by 2.5 percent in the previous month. Meanwhile, the NFA of banks declined on account of higher bills payable.

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