Bank lending growth hits 2-year high

Bank lending in December expanded at its fastest pace in two years, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Outstanding loans of universal and commercial banks jumped by 12.2% year on year to P13.1 trillion in December from P11.7 trillion in the same period in 2023.

This was the fastest lending growth in two years or since the 13.7% recorded in December 2022.

On a seasonally adjusted basis, big banks’ outstanding loans rose by 1.4% month on month.

Central bank data showed outstanding loans to residents climbed by 12.4% to P12.8 trillion in December, faster than the 11.4% growth in November.

Meanwhile, loans to nonresidents rose by 5.7% to P330 billion during the month, faster than the 3.9% posted in November.

Outstanding loans to residents for production activities expanded by 10.8% to P11.2 trillion in December, faster than 9.8% in the previous month. Loans for production accounted for the bulk (85.4%) of overall lending.

The BSP said the growth was driven by sustained lending in wholesale and retail trade, repair of motor vehicles and motorcycles (10.1%); electricity, gas, steam and air-conditioning supply (14.2%); manufacturing (7.4%); financial and insurance activities (7.4%); and construction (12.6%).

Meanwhile, consumer loans jumped by 25% in December from 23.3% in the previous month. Consumer loan data excluded residential real estate loans.

This was due to the “increase in credit card loans; salary-based general purpose consumption loans and motor vehicle loans,” the central bank said.

BSP data showed credit card loans rose by 29.4% in December from 26.5% a month earlier. Salary-based general purpose consumption loans also picked up by 16.5% in December from 15% in the previous month.

However, growth in loans for motor vehicles eased slightly to 19.5% in December from 19.6% in the previous month.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said loan growth picked up as the BSP began its easing cycle.

The central bank started its rate-cutting cycle in August last year. It reduced borrowing costs by a total of 75 basis points (bps), bringing the key rate to 5.75% by end-2024.

For the coming months, easing inflation well could justify further rate cuts this year and “spur greater demand for loans due to lower financing costs,” Mr. Ricafort said.

BSP Governor Eli M. Remolona, Jr. has said a rate cut is still “on the table.”

For 2025, he signaled the possibility of cutting by a total of 50 bps, noting that 75 bps or 100 bps may be a bit “too much.”

Mr. Ricafort also noted the cut in the reserve requirement ratio (RRR) “could have fundamentally increased the loanable funds of banks.”

The BSP reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%, which took effect last October.

Mr. Remolona has said that the Monetary Board is eyeing to again reduce reserve requirements by 200 bps to 5% this year, sometime in the middle of the year.

“The pickup in bank loan growth in recent months could be attributed to improved business and economic conditions, especially in terms of improved data on employment in recent months,” Mr. Ricafort added.

MONEY SUPPLY

Meanwhile, domestic liquidity (M3) grew by 7.7% in December, the same as November.

M3 — which is considered as the broadest measure of liquidity in an economy — increased to P18.8 trillion as of December from P17.4 trillion a year earlier.

Month on month, M3 inched up by 0.2% on a seasonally adjusted basis.

Data from the BSP showed domestic claims rose by 10.4% during the month, though slower than the 10.8% in November.

“Claims on the private sector grew by 12.2% in December from 11.7% in the previous month with the continued expansion in bank lending to nonfinancial private corporations and households,” the BSP said.

The growth in net claims on the central government eased to 7.2% in December from 9.2% in the previous month due to higher National Government borrowings.

Meanwhile, growth in net foreign assets (NFA) in peso terms also eased to 6% from 9.8% in November.

“The BSP’s NFA expanded by 6.8%, reflecting the increase in gross international reserves relative to a year ago. Meanwhile, the NFA of banks declined on account of higher bills and bonds payable,” it added.

Source: Business World

Guarantor's Rights and Obligations in the Philippines

In the Philippines, a guarantor plays a critical role in financial transactions, particularly in loans and credit arrangements. Acting as a guarantor is a significant responsibility that entails both rights and obligations under Philippine law, specifically governed by the Civil Code of the Philippines (Articles 2047 to 2081). Whether you are considering becoming a guarantor or seeking one for your loan, understanding these rights and obligations is essential to make an informed decision.

What is a Guarantor?

A guarantor is a person who agrees to be liable for another person's debt or obligation if that person (the principal debtor) fails to fulfill their obligation. This is commonly referred to as guaranty or suretyship. A guarantor essentially provides financial security to the lender by ensuring that the debt will be paid.

It is important to note that in the Philippines, guaranty and suretyship have distinct legal definitions:

• Guaranty: The guarantor is secondarily liable, which means they are only required to pay if the principal debtor fails to do so.

• Suretyship: The surety assumes direct and primary liability alongside the principal debtor.

This article focuses on the obligations and protections provided to guarantors, which predominantly fall under the concept of guaranty.

Rights of a Guarantor

1. Right to Be Informed

A guarantor has the right to be fully informed about the terms of the debt or obligation. This includes the loan amount, payment schedules, interest rates, and any other conditions that may affect the guarantor's liability.

2. Right to Demand Prior Exhaustion of Assets

One of the most important protections for a guarantor under Philippine law is the principle of benefit of excussion. This means that a guarantor cannot be compelled to pay the debt until the creditor has exhausted all legal remedies against the principal debtor's properties.

However, this right can be waived if:

• The guarantor expressly renounces the benefit of excussion.

• The guarantor acts as a surety (i.e., assumes primary liability).

3. Right of Subrogation

If the guarantor pays the debt, they are entitled to recover the amount paid from the principal debtor. This is known as the right of subrogation, which allows the guarantor to step into the creditor's position and collect the debt from the original borrower.

4. Right to Reimbursement

A guarantor who pays the creditor is entitled to reimbursement from the principal debtor, including any interest or damages incurred as a result of fulfilling the guaranty.

5. Right to Refuse Unfavorable Modifications

If the creditor and debtor alter the terms of the original obligation without the guarantor's consent (e.g., increasing the loan amount or extending the loan term), the guarantor may be released from their obligation.

Obligations of a Guarantor

1. Secondary Liability

In a guaranty agreement, the guarantor is only liable when the principal debtor defaults. The guarantor's obligation begins when the debtor fails to meet their obligation after the creditor has attempted to collect from them.

2. Payment of the Debt

If the principal debtor fails to pay, the guarantor must fulfill the debt or obligation, including interest and any applicable penalties, up to the limit specified in the guaranty agreement.

3. Notification of Default

While the guarantor is not obligated to monitor the debtor constantly, they must be prepared to fulfill their commitment if the creditor notifies them of the debtor’s default.

4. Liability for Additional Costs

The guarantor may also be liable for additional costs, such as legal fees or collection expenses, if specified in the guaranty agreement.

5. Compliance with the Terms of the Agreement

The guarantor must comply strictly with the terms and conditions of the guaranty agreement, including timelines for payment and any collateral requirements.

When Can a Guarantor Be Released from Their Obligation?

A guarantor can be released from their obligation under the following circumstances:

1. Expiration of the Guaranty: If the guaranty specifies a time limit and that period has lapsed.

2. Payment by the Debtor: If the principal debtor fulfills their obligation, the guarantor's liability is extinguished.

3. Alteration of the Contract: If the creditor and debtor change the terms of the agreement without the guarantor’s consent.

4. Waiver of Rights: If the creditor waives their right to demand payment from the guarantor.

5. Extinguishment of the Principal Obligation: If the debt or obligation is extinguished, the guarantor is no longer liable.

Key Considerations Before Becoming a Guarantor

Becoming a guarantor is a serious financial commitment, and it is crucial to evaluate the following before signing any agreement:

• Understand the Terms: Carefully review the loan agreement and guaranty contract.

• Assess the Debtor’s Ability to Pay: Evaluate the borrower’s financial stability and capacity to repay the debt.

• Know Your Risks: Be aware that you may need to pay the debt if the debtor defaults.

• Set Limits: If possible, specify the maximum amount and duration of your liability in the guaranty agreement.

• Seek Legal Advice: Consult with a lawyer to understand your rights and obligations fully.

Final Thoughts

While acting as a guarantor can help a friend, family member, or business partner secure a loan, it is not without risks. Understanding your legal rights and obligations under Philippine law will help you protect yourself and make an informed decision.

Always remember that being a guarantor means putting your financial future on the line, so it’s crucial to approach this role with caution and knowledge.

If you find yourself in a situation where you need to act as a guarantor or seek one, take the time to review all the terms and seek professional legal advice when necessary. In the world of financial commitments, being informed is your best defense.

Source: ZRE

Banks see higher loan demand in Q1

Banks expect higher loan demand from companies and households this quarter after a series of interest rate cuts done by the Bangko Sentral ng Pilipinas (BSP) last year. 

Based on the results of the BSP’s fourth quarter 2024 Senior Bank Loan Officers’ Survey (SLOS), most respondent banks projected a net increase in overall demand for loans from businesses in the first quarter.

The increase was due to higher customer inventory financing needs, clients’ more optimistic economic expectations and an increase in borrowers’ short-term financing needs.

Likewise, there was also a net increase in overall credit demand from consumers as anticipated by surveyed banks in the current quarter amid rising consumption and banks’ more favorable credit terms.

The SLOS consists of questions on loan officers’ perceptions relating to the overall credit standards of their respective banks, as well as to factors affecting the supply of and demand for loans to both enterprises and households.  

For the fourth quarter alone, the survey indicated a net rise in overall loan demand from firms, but slightly lower than the previous quarter. The increase was also driven by inventory financing needs, optimistic economic outlook and rise in borrowers’ short-term financing needs.

Meanwhile, the diffusion index approach indicated a lower net rise in demand for household loans in the fourth quarter last year compared to the previous quarter.

“The overall increase in household loan demand was mainly due to banks’ more attractive financing terms and higher consumption,” the BSP said.  

This is despite the tighter lending standards for enterprises from October to December and unchanged standards for consumer loans.

“The diffusion index approach indicated a net tightening of credit standards in the fourth quarter of 2024, due to the deterioration in borrowers’ profiles and the profitability of the bank’s portfolio,” the BSP said. 

On the other hand, the broadly steady loan standards for households were mainly due to the unchanged profile of borrowers, tolerance for risk and the profitability of the bank’s portfolio.

Source: Philstar