Bank borrowers enjoy lower rates – BSP

MANILA, Philippines – Bank borrowers continued to enjoy lower rates as the accommodative policy stance of the Bangko Sentral ng Pilipinas (BSP) provided support to the economy and the favorable inflation outlook as well as well-cemented inflation expectations.

The BSP reported yesterday that actual bank lending rates declined by 224 basis points to 7.07 percent as of end-June this year from 9.272 percent during the start of the easing cycle in December of 2008.

The BSP said banks have been more accommodating to both corporate and household borrowers as their pass-through rates have reached 110 percent of the rate cut implemented by the policy-setting body of the central bank.

Pass through is defined as the ratio between the change in the lending rate and the change in the policy rate since the beginning of the easing cycle.

The central bank has slashed key policy rates by 200 basis points from December 2008 to July last year as part of easing measures to boost the country’s slackening domestic economy.

This brought the overnight borrowing rate to a record low of four percent from six percent and the overnight lending rate to six percent from eight percent.

The BSP has kept its rates at record lows for nine straight policy setting meetings since July last year but has continued to unwind crisis-related measures adopted in November of 2008 to release liquidity into the financial system to support domestic economic activity to survive the global economic meltdown.

Given ample liquidity and the continued stability of financial markets, liquidity-enhancing crisis response measures that were tweaked include the increase of the rate on a short-term lending facility to four percent from 3.5 percent; further reduction of the peso rediscounting budget from P60 billion to P40 billion and back to the pre-crisis level of P20 billion; restoration of the loan value of all eligible rediscounting papers to 80 percent from 90 percent of the borrowing bank’s credit instrument; and restoration of the non-performing loan (NPL) ratio requirement of two percentage points from 10 percentage points.

Latest data showed that bank lending continued to grow at a faster pace in June as corporate and individual clients borrowed more due to increased economic activity as the country’s domestic output expanded stronger-than-expected in the first quarter of the year.

Bank lending grew at a faster pace of 9.6 percent in June from 8.1 percent in May after the country’s gross domestic product (GDP) growth surged to 7.3 percent in the first quarter of the year from 0.5 percent in the same quarter last year. Total outstanding loans of banks excluding reverse repurchase placements with the BSP amounted to P2.18 trillion as of end-June this year or P191 billion more than the P1.989 trillion registered in end-June last year.

The BSP traced the increase to the growth of loans for production activities that comprise around four-fifths of the total loan portfolio of commercial banks as well as the expansion of the loans for individuals such as credit card and auto loans. Loans for production activities accelerated by 9.3 percent to P1.956 trillion in end-June from P1.788 trillion as of end-June last year.

On the other hand, loans for household consumption increased by 13 percent to P180.94 billion as of end-June this year from P159.79 billion as of end-June last year. Auto loans surged 33.8 percent to P49.81 billion while credit card loans went up by 8.4 percent to P113.7 billion. –Lawrence Agcaoili (The Philippine Star)