Manila: Lending activities in the Philippines are anticipated to receive a significant boost from the ongoing decline in domestic interest rates, contributing to the sustained resilience of the Philippine economy.
According to Philippines News Agency, Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort stated on Friday that the Bangko Sentral ng Pilipinas (BSP) has made a series of rate cuts, totaling 100 basis points this year. This move is expected to incentivize more businesses to secure bank loans, which will subsequently bolster domestic expansion.
Preliminary data from the BSP, released on Wednesday night, indicated that bank lending, excluding placements in the BSP's reverse repurchase (RRP) facility, saw an annual growth of 10.5 percent in September. This growth rate, however, is slower than the 11.2 percent recorded in the previous month, marking the slowest pace in 14 months since July 2024. Ricafort attributed this deceleration partly to weather-related disruptions that impacted business transactions and economic activities, along with a reduction in infrastructure-related spending.
Business loans during this period increased by 9.1 percent, which is a slight decline from the 9.9 percent rise in August. Consumer loans also saw a slowdown, growing by 23.5 percent compared to the previous month's 23.9 percent. Despite this slight deceleration, Ricafort noted that the growth of large bank loans remains one of the fastest in over two and a half years, or since December 2022.
He emphasized that the steady growth in bank lending is a positive indicator for the economy, serving as a bright spot and growth driver. This growth is partly supported by demographics, with the average age of the country's 114 million population set at 25 years old, making consumer loans an expanding sector in the local banking industry. The consumer loans-to-GDP ratio in the Philippines, at over 11 percent, is still relatively lower compared to other more developed ASEAN countries.
Ricafort also highlighted the impact of the reduction in banks' reserve requirement ratio (RRR) in September 2024. This reduction, by 250 basis points for universal and commercial banks, is estimated to have injected about PHP400 billion into the domestic financial system. He noted that the RRR cuts could have increased the loanable funds of banks while reducing intermediation and borrowing costs. This would, in turn, enhance the demand for loans and credit, thereby boosting economic growth and investment valuations as part of monetary easing measures, as long as inflation remains well-anchored within the central bank's target.
