By Keisha B. Ta-asan, Reporter

BANK LENDING steadied in March alongside a rise in domestic liquidity, despite aggressive rate hikes by the Philippine central bank.

Data released by the Bangko Sentral ng Pilipinas (BSP) on Monday showed outstanding loans by big banks rose by 10.1% to $10.762 trillion in March from $9.77 trillion a year earlier.

This was the fastest growth in bank lending in two months or since the 10.4% seen in January.  It also ended three straight months of slower credit growth.

Month on month, outstanding universal and commercial bank loans, net of reverse repurchase placements, inched up by 0.2%, the BSP said.

“The sustained growth in credit is supported by sound Philippine banking system conditions,” BSP Governor Felipe M. Medalla said in a statement.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the uptick in March bank lending was a “surprise.”

“We are expecting outstanding loan growth to weaken amidst rising interest rates. This may indicate the resiliency of the economy despite the headwinds,” Mr. Asuncion said.

The BSP has raised borrowing costs by 425 basis points (bps) since May 2022 to tame inflation. This brought the key policy rate to 6.25%, the highest in nearly 16 years.

The aggressive monetary tightening appears to have had an impact, as headline inflation eased to 6.6% in April, from 7.6% in March. It was the slowest inflation rate in eight months or since 6.3% in August last year.    

For the first four months of 2023, inflation averaged 7.9%. This is still above the central bank’s 6% average forecast for 2023 and its 2-4% target.    

“Bank lending continues its robust growth despite higher interest rates. This might be due to the lagged impact of rate hikes which started May last year,” China Banking Corp. Chief Economist Domini S. Velasquez said.

Credit for production activities increased 8.9% in March, slightly faster than the 8.7% growth seen in February.

This was driven by borrowings for electricity, gas, steam, and air-conditioning supply (12.5% in March from 9.3% in February); wholesale and retail trade, and repair of motor vehicles and motorcycles (10.5% from 9.3%); financial and insurance activities (13.1% from 12.5%); manufacturing (9.1% from 8.3%); and real estate activities (4.2% from 3.8%).

However, loan growth slowed for information and communication (16.9% in March from 18.6% in February); public administration and defense, compulsory social security (8.4% from 11.8%); mining and quarrying (7.3% from 13.4%); and agriculture, forestry and fishing (3.9% from 4.9%).

BSP data also showed a 41% decline in loans for professional, scientific and technical services, a reversal of the 107% growth in February.

“Moving forward, we will likely see a deceleration in bank lending growth, especially in sectors for production, since we expect the BSP to keep its policy rate relatively tight this year,” Ms. Velasquez said.

BSP data also showed household borrowings expanded by 21.3% in March, unchanged from February.

Credit card loans grew by 27.9% in March, slower than the 29.4% in February. Salary-based general purpose consumption loans also grew by 67%, easing from 69.9% in the prior month.

On the other hand, borrowings for motor vehicles inched up by 0.5%, improving from the 1.3% decline seen in February.

“For consumer loans, we expect credit card loans to remain resilient as Filipinos move to cashless lending and take advantage of deferred payments,” Ms. Velasquez said.

Meanwhile, money supply expanded by 6% year on year to P16.2 trillion in March, recording the same rate of expansion in February.

Money supply, or M3, is considered as the broadest measure of liquidity in an economy.    

Month on month, M3 rose by about 0.2%, the BSP said in a separate statement.

In March, domestic claims rose by 12.4%, slightly faster than the 11.6% in February.

Net borrowings of the central government expanded by 9.6%, slowing from the 9.9% growth in February.

Net claims on the central government increased by 21.4% in March, faster than the revised 17.5% in February. Claims in the private sector jumped by 9.6%, slower than February’s 9.9%.

Meanwhile, net foreign assets (NFA) declined by 4.2% in March, worsening from the 3.1% contraction in February.

“The NFA of banks declined mainly on account of higher bills payable. Similarly, the BSP’s NFA position fell by 0.9% in March,” the BSP said.