IMF sees credit growth at 19% this year

The International Monetary Fund (IMF) sees credit growth accelerating this year, flagging possible risk of overheating if monetary authorities fail to put this in check.

IMF Philippine resident representative Yongzheng Yang said bank lending is seen growing by 19 percent this year from 17.2 percent last year amid the continued expansion of the domestic economy.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed bank lending grew faster at 21.1 percent to P6.76 trillion in end-September from P5.58 trillion in end-September last year.

Loans for production activities extended by banks surged 20.7 percent to P6 trillion in end-September from P4.97 trillion in end-September last year. This accounted for 88.8 percent of the loans disbursed by the banking sector.

Credit disbursed to the real estate sector went up 16.8 percent to P1.15 trillion for a 17.1 percent share in the total loan portfolio, while lending to the wholesale and retail trade as well as repair of motor vehicles and motorcycles zoomed 16.7 percent to P887.82 billion for a 13.1 percent share.

The BSP data showed that lending to the manufacturing sector increased 10.3 percent to P870.36 billion for a 12.9 percent share, while credit extended to electricity, gas, steam and airconditioning supply jumped 24.1 percent to P809.44 billion for a 12 percent share.

Yang warned there could be potential overheating if the 21.1 percent growth in bank lending in September accelerates further.

“Right now, what we’re saying is baseline credit growth will moderate. There will be no overheating. If credit growth as forecasts keeps going up, then we have to look at whether there’s a possibility of (overheating),” he added.

The IMF official has identified potential overheating due to rapid credit growth as one of the domestic risks on top of natural disasters and securityrelated events.

The multilateral lender sees the country’s gross domestic product (GDP) growing 6.6 per- cent this year, 6.7 percent next year and 6.8 percent in 2019.

According to Yang, the BSP’s Monetary Board should be ready to step in and intervene to prevent the overheating of the economy that grew faster-thanexpected in the third quarter at 6.9 percent from the revised 6.7 percent in the second quarter.

“If there is indeed overheating, you need to tighten monetary policy, by raising interest rates. And if the overheating is also reflected in very high credit growth, credit boom – meaning credit growth is excessive,” Yang said.

For 2019, Yang said credit growth is seen easing to 17.4 percent due to high base in the previous years.

“We expect the growth would start to converge to potential level. And with very strong growth over the last couple of years there should be normalization,” he said.

BSP Governor Nestor Espenilla Jr. has repeatedly downplayed fears of overheating of the Philippine economy.

The BSP has kept interest rates steady at low levels over the past three years to support the country’s expanding economy. It last raised benchmark rates by 25 basis points in September 2014.