Despite Higher Interest Rates, Lending Growth in October Fastest in Almost Four Years

Bank lending expanded at the fastest pace in almost four years this October, with outstanding loans (net of reverse repurchase placements [RRP] with BSP) up 13.9 percent year-on-year to PHP 10.56 trillion. Despite mounting interest rates, the recovery of the credit market has been robust, notching 15 consecutive months of expansion. On a month-on-month, seasonally adjusted basis, the lending net of RRP placements with the BSP expanded by 1.1 percent.

Year-on-year, loans for information and communication were up 25 percent, followed by manufacturing (17.7 percent); real estate activities (14 percent); financial and insurance activities (12.8 percent); production activities (12.5 percent), wholesale and retail trade, repair of motor vehicles and motorcycles (11.5 percent); and electricity, gas, steam, and air-conditioning supply (10.9 percent). Consumer loans to residents were up 22.6 percent to PHP 987.11 billion (USD 17.65 billion), and largely attributable to a 26.8 percent increase in credit card loans and a 62.8 percent increase in salary-based general purpose consumption loans. Motor vehicle loans were up 6.6 percent year-on-year. Outstanding loans to residents net of RRPs expanded 13.4 percent year-on-year to PHP 10.22 trillion (USD 182.80 billion) in October, while outstanding loans to non-residents net of RRPs was up 33 percent to PHP 338.68 billion (USD 6.05 billion).“The sustained growth in credit activity and ample liquidity will continue to support the recovery of economic activity and domestic demand,” BSP Governor Felipe M. Medalla said in a statement on Tuesday evening.

BSP Governor Felipe M. Medalla stated that the BSP could continue “to ensure that liquidity and bank lending conditions remain consistent with promotion of price and financial stability,” further noting that “sustained growth in credit activity and…liquidity” would be key in supporting “the recovery of economic activity and domestic demand.”

According to ING Bank Manila Senior Economist Nicholas Mapa, the expansion of the credit market reflected some aspects of “revenge spending…with firms and households looking past elevated borrowing costs to partake in the reopening story.” According to Mr. Mapa, “pent-up demand for expansion activity after two years of delay are compelling borrowers to take on loans despite high rates.” Meanwhile, Rizal Commercial Banking Corporation Chief Economist Michael Ricafort pointed out that “ironically, higher inflation and interest rates would also lead to higher borrowings by some sectors to make up for higher prices on investments, operating costs, and other inputs, as well as to deal with higher debt servicing costs/interest expense for some borrowers.”