MANILA, Philippines – Lending rates have fallen to an average of 7.5 percent since the beginning of the year and the Bangko Sentral ng Pilipinas (BSP) said consumers and corporate borrowers alike should take advantage of favorable borrowing conditions.
Like other central banks, the BSP has opted to pour liquidity into the economy in the hope of encouraging economic activities to continue even with dimming global prospects.
But BSP Governor Amando M. Tetangco Jr. said that releasing liquidity into the system was only half of the solution. He said banks have to lend and consumers have to borrow in order to keep the system flowing.
Tetangco said that based on the BSP’s data on bank lending rates, the level hit its lowest point in 2007 when the average was at 6.8 percent.
Bank lending rates have risen to 7.5 percent in 2008 but have remained largely steady at the 7.8 percent average as of January to mid March this year.
Tetangco said the steadiness of bank lending rates indicated that the economy is better positioned now than in the 1997 financial crisis where the average lending rate was recorded at 23.9 percent.
“Banks are actually already doing this, we just want them to continue doing it,” Tetangco said.
Crisis periods normally make consumers hold back spending but Tetangco said this period was different in that the government could afford to bring down lending rates precisely to encourage economic activities.
“People should take advantage of it,” he said.
The growth in bank lending is still accelerating as of January this year, with the year-on-year growth recorded at 18.8 percent as banks reacted to monetary easing by pushing their lending operations.
The BSP expects growth to slow down to half its growth rate in 2008 but data showed that as of January this year, core lending is still growing by 24.5 percent.
Including banks’ fund placements with the BSP, bank lending growth expanded by 18.8 percent, faster than the 17.5-percent growth rate in December. Excluding BSP placements, lending grew faster than the 20.5-percent rate in the previous month.
The BSP’s monetary easing had been aimed specifically at boosting bank lending to productive sectors to support economic activities that would sustain the country’s economic growth momentum and prevent a slowdown that would cause displacement.
The BSP said that loans for production activities, which accounted for the bulk of total loans, grew by 22 percent in January from 18.3 percent in December. These loans went to agriculture, hunting, and forestry (which grew by 44.6 percent); real estate, renting, and business services (36.1 percent); transportation, storage and communication (77.6 percent); wholesale and retail trade (24.1 percent); and electricity, gas and water (18.5 percent).
Tetangco said bank lending would be ultimately affected by the economic recession in developed economies and the slowdown in growth in the rest of the world.
Tetangco said bank lending is already showing initial signs of slowing down, as banks become more cautious about lending to productive activities because of the rising possibility of default during an economic crunch.
“We’re looking at (a growth of) about 10 percent,” Tetangco said. “Credit growth is going to continue but at a slower rate.”
According to Tetangco, bank lending has continued at a “relatively healthy” pace but the slowdown in the economy would have a negative impact on credit.–Des Ferriols, Philippine Star