Bank lending growth reached a 19-month high in July

By means of Luisa Maria Jacinta C. Jocson, Reporter

Bank lending grew at the fastest pace in 19 months in July, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Outstanding loans of universal and commercial banks rose 10.4% year-on-year to P12.14 trillion in July, compared to P11 trillion a year ago.

The growth rate in July was the fastest since 13.7% in December 2022.

On a seasonally adjusted basis, outstanding loans from major banks increased by 0.8% month on month.

Growth in outstanding loans to residents rose to 10.4% in July, compared to 10.1% a month earlier. The increase in loans to non-residents slowed from 9.8% in June to 9.2% in July.

BSP data showed that outstanding loans for manufacturing activities accounted for the largest share (85.4%) of total lending.

Loans for manufacturing activities rose 8.8% year-on-year to P10.37 trillion in July, faster than 8.3% in June.

This was mainly caused by an increase in loans for professional scientistsFIC and technical services (438.3%), water supply, sewerage, waste management and remediation activities (28.2%), transport and storage (20.6%), and mining and quarrying (20.4%).

Meanwhile, consumer loans to residents rose 24.3% to P1.42 trillion in July. However, this was slightly slower than the 25% rate posted a month ago.

Broken down, double-digit growth was observed in credit cards (28.2%), motor vehicles (19.9%) and salary-based consumer loans (16.5%).

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the continued growth of bank lending is a ‘good sign for the economy’.

Mr Ricafort noted that bank lending growth outpaced gross domestic product (GDP) growth at 6.3% in the second quarter.

However, Mr. Ricafort noted that credit growth was still dampened by “still relatively higher interest rates that have made loans more expensive since 2022.”

From May 2022 to October 2023, the central bank increased borrowing costs by a total of 450 basis points (bps).

“The rebound in bank loan growth in recent months can be attributed to improved business and economic conditions, especially in terms of improved employment data in recent months,” Ricafort said.

He said this will relax in the coming monthsFA further reduction in policy rates would help support credit activity.

The Monetary Board cut rates by 25 basis points last month, bringing the benchmark interest rate to 6.25% from the previous 6.5%, the highest level in more than seventeen years.

BSP Governor Eli M. Remolona Jr. also announced another possible rate cut of 25 basis points in the fourth quarter.

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Meanwhile, separate BSP data showed domestic liquidity (M3) rose 7.2% in July, faster than 6.6% a month ago.

M3 – considered the broadest measure of liquidity in an economy – rose to P17.5 trillion in July from P16.31 trillion a year earlier.

Month on month, M3 rose by 0.7%.

Domestic claims rose 11.3% in July, faster than the 10.5% increase in June.

“Private sector claims rose 11.9% in July, compared to 11.7% in June, reflecting continued expansion of bank lending to non-financial private firms and households,” the BSP said.

“Net claims on the central government increased by 14%, up from 12.1%, partly due to continued borrowing from the national government,” it added.

Meanwhile, net foreign assets (NFA) in peso terms rose 11.2% in July, compared to 8.3% in the previous month.

“The BSP’s NFA grew by 13.8%, while the banks’ NFA contracted, largely due to higher bills and bonds payable,” it added.