Double-digit growth in bank lending seen this year
The heritage Post Office is being repaired and may be redeveloped into a hotel that will further boost the area’s attractiveness for tourists.
The Philippine banking sector is expected to book double-digit growth in loan disbursements this year on the back of robust economic growth, according to BMI Country Risk & Industry Research.
The research arm of the Fitch Group sees credit growth accelerating to 10 percent by the end of 2024 from an estimated 5.7 percent in 2023.
“A better economic performance will set the stage for an improvement in the Philippine credit environment,” BMI said.
In a commentary titled “Philippines: Credit Demand to Improve in 2024,” BMI said it expects loan growth to stage a stronger performance this year.
“Better macroeconomic conditions and lower interest rates in the second half of 2024 bode well for the credit environment,” it said.
Latest data from the central bank showed credit growth slowed anew to seven percent in November last year from 7.1 percent in October. Loans disbursed by big banks amounted to P11.4 trillion as of end November last year.
BMI added that there would be limited risks to financial stability as the Philippine banking system is underpinned by a strong balance sheet and robust capital buffers.
“Bank asset quality will face some challenges over the coming quarters due to high-interest rates. However, financial stability risks remain well contained as the banking system boasts robust balance sheets and capital buffers,” it said.
According to BMI, there would be some relief for loan growth when monetary loosening commences in the second half of this year.
The Bangko Sentral ng Pilipinas (BSP) has raised key policy rates by 450 basis points to tame inflation and stabilize the peso that slumped to an all-time low of 59 to $1 in October 2022.
This brought the benchmark interest rate to a fresh 16-year high of 6.5 percent, the highest since the 7.5 percent recorded in May 2007 from an all-time low of two percent during the height of the COVID-19 pandemic.
“At 6.5 percent, interest rates are currently at their highest in over a decade. That said, we believe the hiking cycle has finally concluded as inflationary pressures recede,” BMI said.
The tightening cycle helped tame inflation to a 22-month low of 3.9 percent in December, the first time it eased within the BSP’s two to four percent in 20 months from a peak of a 14-year high of 8.7 percent in January last year.
Inflation quickened to six percent in 2023 from 5.8 percent, breaching the BSP target range for two straight years.
“This set the stage for policy loosening in the second half of 2024, which will encourage lending as borrowing costs decline. What surprised us was the resilience of household loans in 2023,” BMI added.
Despite the aggressive pace of domestic tightening, BMI pointed out that loans for household consumption still jumped by 22.5 percent from January to November last year.
“Considering the possibility for cuts to materialize in the latter half of the year, we think these figures will remain robust in 2024 as well,” it said.
BMI explained improving domestic conditions would also provide a boost to credit demand.
“The Philippine economy has proven to be resilient thus far. Indeed, the latest third quarter 2023 data showed the strongest pace of growth in nearly two years when measured in quarter on quarter seasonally adjusted terms,” BMI said.
BMI, formerly Fitch Solutions, sees the country’s gross domestic product (GDP) growth rising to 6.2 percent this year from 5.7 percent last year.
This is still below the 6.5 to 7.5 percent GDP growth target penned by economic managers via the Development Budget Coordination Committee (DBCC) this year.
Last Wednesday evening, the riverside behind the Manila Post Office saw a level of activity not seen in close to a century. Boats were scurrying up and down the river. The Jones Bridge was lit and festooned for a national event. The muelles (quays) from there to just before the Binondo bridge were filled with people. Music wafted through the air, and local elite as well as the hoi polloi promenaded up and down the esplanade enjoying the famed Manila sunset.
The event was the launch by President Ferdinand Marcos, Jr. and First Lady Liza Araneta Marcos of the Pasig River Urban Development (PRUD) project and specifically its pilot area. This is a half-kilometer stretch of the planned Pasig River Esplanade, which is part of the first section of