Banks lend more as asset quality improves
Bank lending grew at its fastest pace in 11 months in March, showing resilience in the face of a high interest rate environment as asset quality also improved.
Outstanding loans by big banks, excluding funds lent among themselves, amounted to P11.8 trillion in March, up by 9.4 percent year-on-year, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.
The expansion was faster than the 8.6-percent annualized growth in February. It was also the briskest pace of increase since April 2023.
This, in turn, flushed more liquidity into the financial system. Domestic liquidity, the broadest measure of money supply, grew by 5.7 percent to P17.2 trillion in March.
Robert Dan Roces, economist at Security Bank, said banks were still riding the ongoing economic recovery from the pandemic, helping them weather tight financial conditions.
Pent-up demand
“The acceleration in bank lending growth despite a high interest rate environment can be attributed to a still ongoing economic recovery, some pent-up consumer demand [and] improving business sentiment,” Roces said.
The overall credit expansion in March was driven by strong appetite for consumer loans, which picked up by 25.4 percent to P1.3 trillion.
Household loan growth is now nearly double the P839.2-billion consumer credit recorded at end-2019, or before the pandemic struck. Credit card and auto loans posted punchy growth rates of 30 percent and 19 percent in March, respectively, while salary-based loans picked up by 17.6 percent.
Loans for businesses rose by 7.7 percent to P10.1 trillion.
Businesses were still “possibly constrained by the high interest rate environment,” said Nicholas Mapa, senior economist at ING Bank in Manila.
“This is in stark comparison to bank lending during the recent growth spurt of the Philippines where lending to production was vibrant given the balanced monetary policy stance of the BSP back then,” Mapa said.
The strong credit growth coincided with improved asset quality. Banks’ nonperforming loans—those more than 90 days late on a payment—accounted for 3.39 percent of total loan portfolio in March, down from 3.44 percent in the previous month. Bad loans totaled P464.7 billion, up by just 0.3 percent from February.
