Bank lending growth hit a 20-month high in August

Bank lending growth hit a 20-month high in August, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Outstanding loans of universal and commercial banks rose by 10.7% year on year to P12.25 trillion in August from P11.07 trillion a year ago.

This was also the fastest growth rate since the 13.7% logged in December 2022.

On a seasonally adjusted basis, big banks’ outstanding loans inched up by 0.8% month on month. Bank lending grew by 10.4% in July.

Central bank data showed outstanding loans to residents picked up by 10.9% in August from 10.4% a month earlier. On the other hand, the growth of loans to nonresidents sharply slowed to 1.5% from 9.2% in July.

Loans for production activities climbed by 9.4% year on year to P10.47 trillion in August from P9.58 trillion a year ago. It was also faster than the 8.8% clip in July.

“This growth was largely driven by loans to key industries such as real estate activities (13.2%); wholesale and retail trade, repair of motor vehicles and motorcycles (10.7%); manufacturing (9.8%); transportation and storage (23.4%); electricity, gas, steam & air-conditioning supply (7%),” the BSP said.

Double-digit increases were also seen in loans for water supply, sewerage, waste management and remediation activities (44.9%); professional, scientific and technical services (22%); and mining and quarrying (21.7%).

Meanwhile, the growth in consumer loans to residents eased to 23.7% in August from 24.3% a month prior.

This as slower loan growth was recorded in credit cards (27.4% in August from 28.2% in July), motor vehicles (19.3% from 19.9%), and salary-based general purpose consumption loans (16.4% from 16.5%).

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the jump in lending growth was due to the BSP’s rate cut in August, its first policy reduction in close to four years.

The central bank in August reduced the target reverse repurchase (RRP) rate by 25 basis points (bps) to 6.25% from the over 17-year high of 6.5%.

The Monetary Board has two remaining meetings this year, on Oct. 16 and Dec. 19. BSP Governor Eli M. Remolona, Jr. has signaled the possibility of cutting by 25 bps at the next two meetings.

Easing inflation and further rate cuts would also “help spur greater demand for loans or credit due to lower borrowing costs,” Mr. Ricafort added.

Headline inflation eased to 1.9% in September from 3.3% in August and 6.1% a year ago. This was also its slowest print in over four years or since the 1.6% print in May 2020.

MONEY SUPPLY

Meanwhile, separate BSP data showed that domestic liquidity (M3) rose by 5.5% in August, slower than the 7.3% posted a month ago.

M3 — which is considered as the broadest measure of liquidity in an economy — increased to P17.4 trillion in August from P16.5 trillion a year earlier. Month on month, M3 slipped by 0.1%.

Domestic claims jumped by 10% in August, slower than the 11.4% expansion in July.

“Claims on the private sector grew by 11.9% in August from 12% in July (revised), driven by sustained expansion in bank lending to nonfinancial private corporations and households,” the BSP said.

“Net claims on the central government increased by 8.5% from 14.1% in the previous month (revised), due to continued borrowings by the National Government,” it added.

Central bank data showed net foreign assets (NFA) in peso terms went up by 2.4% year on year in August, much slower than 11.2% in the previous month.

“The BSP’s NFA grew by 7.7%, while the NFA of banks contracted, largely due to higher bills and bonds payable.”

Mr. Ricafort said that domestic liquidity growth could pick up after the latest cut in banks’ reserve requirement ratio (RRR).

The central bank last month said it will cut big banks’ RRR to 7% from 9.5% effective on Oct. 25.

Mr. Remolona has said that they are looking to reduce the ratio to zero within his term, which ends in 2029.

“Any further RRR cuts, which add more peso liquidity in the financial system, would be gradual in the coming years,” Mr. Ricafort added.

BAD LOANS

Meanwhile, separate BSP data showed the banking industry’s gross nonperforming loan (NPL) ratio continued to rise in August, hitting a fresh two-year high.

Preliminary data from the BSP showed the banking industry’s gross NPL ratio went up to 3.59% in August from 3.58% in July and 3.41% a year ago.

This was also the highest bad loan ratio in 26 months or since 3.6% in June 2022.

Bad loans inched up by 0.9% to P512.7 billion in August from P508.1 billion in July. Year on year, it rose by 15.8% from P442.6 billion.

Loans are considered nonperforming once they remain unpaid for at least 90 days after the due date. These are deemed as risk assets since borrowers are unlikely to pay.

In August, past due loans were up by 0.9% to P631.4 billion from P625.7 billion in July and by 19.6% from P527.9 billion a year ago.

This brought the past due ratio to 4.42% in August, higher than 4.4% in July and 4.15% a year earlier.

Restructured loans went up by 0.7% to P293.2 billion in August from P291.1 billion a month prior. Year on year, it declined by 4.2% from P306 billion.

Restructured loans accounted for 2.05% of the industry’s total loan portfolio, steady from a month ago but lower than 2.36% last year.

Banks’ loan loss reserves increased by 0.7% to P482.5 billion from P479.2 billion a month ago. It also rose by 5.8% from P456 billion year on year.

This brought the loan loss reserve ratio to 3.37%, steady from July but lower than 3.52% in August 2023.

Lenders’ NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, slipped to 94.11% in August from 94.32% in July and 103.02% a year ago.

Source: Business World

Time a loan will tell: Where does bank credit go?

Do you ever wonder where bank loans go?

With financial conditions remaining tight, securing bank loans can be more expensive now than ever before for many Filipinos. Data from the Bangko Sentral ng Pilipinas (BSP) show that credit growth in the country has slowed since the start of the central bank’s aggressive tightening against inflation, although outstanding loans of the country’s big banks—excluding their lending with each other—managed to grow at a faster rate of 8.6 percent in February to P11.61 trillion.

If we consider the entire Philippine banking system, total outstanding bank loans amounted to a larger P12.57 trillion as of February.

“The reason for the underperformance of bank lending can be tied to elevated borrowing costs, showing clearly the negative impact of policy rate hikes on growth momentum,” Nicholas Mapa, senior economist at ING Bank in Manila, says in a commentary.

But, again, where does all that money go?

By major segments, latest figures from the BSP show 80.46 percent of these loans are extended to local businesses while 13.62 percent are secured by Filipino households.

Also, 3.34 percent of these borrowings are in the form of reverse repurchase agreements, or securities the BSP intends to buy back at a later date, while the remaining 2.58 percent is granted to foreign borrowers.

Broken down, domestic enterprises engaged in real estate activities corner 19.31 percent of total loans in the local banking system, taking the largest share. Coming in at second place are companies in the business of “wholesale and retail trade, repair of motor vehicles, motorcycles” with a 10.91-percent share.

Firms engaged in production of electricity, gas, steam and air conditioning supply take the third biggest slice (9.9 percent) of the credit pie, followed by manufacturers with a 9.74-percent share.

On the household level, credit cards account for 5.68 percent of the local banking industry’s total outstanding loans, while motor vehicle loans corner a smaller 4.07-percent share. Salary-based loans eat up 3.48 percent of the total credit.

Too much household debt?

For ING Bank’s Mapa, it remains unclear if the uptick in bank loans—despite stubbornly high inflation that’s beating household savings—is not a symptom of a creeping economic problem.

Mapa notes that loans to consumers have been surging over the past 24 months driven by “the stark increase in both credit card debt and salary-based loans.”

The rapid increase in lending to these sectors, he says, has resulted in consumer credit almost doubling from their pre-COVID levels, with the latest reading at P1.2 trillion from the roughly P587 billion prior to the health crisis.

“This may be viewed as a positive for some but the sustained increase in household debt at a time where savings rates are still well-below prepandemic levels could eventually be a worrisome trend,” Mapa says in a commentary.

Moving forward, the ING bank economist expects elevated borrowing costs to weigh on the economy, which may have a hard time hitting a 6-percent growth.

“Rate hikes have a negative impact on growth, and although we may still see growth remain positive, we can only contemplate how much higher our GDP (gross domestic product) growth would be had policy rates not been so restrictive,” Mapa says.

Source: Inquirer

On interest due on housing loans

Housing loans account for a bulk of outstanding consumer loans in the Philippines.

In a study conducted by the Bangko Sentral ng Pilipinas in June 2020, the total amount of residential real estate loans (RREL) is the highest with P772 billion out of the P10.6 trillion, which was the total loan portfolio for consumer loans, including, among others, motor vehicle loans, credit card receivables and salary-based general-purpose consumption loans, under the Philippine banking system.

Nevertheless, nonperforming RREL—that is, where the borrower is usually 90 days past due in making any scheduled payments of principal or interest thereon—account for the highest percentage of nonperforming consumer loans (NPL) at P26.77 billion out of the total NPL of P232 billion.

Meanwhile, the nonperforming RREL account for 3.47 percent of the total RREL.

Settling a nonperforming RREL usually means paying the interest due. Take note, however, that under the Civil Code, interest shall be due only when it is expressly stipulated in writing.

Thus, in a string of cases involving the Philippine National Bank (PNB), the Supreme Court declared void the clause in its credit and housing loan agreements, which does not specify the applicable rates of interest.

Instead, this clause merely authorized the PNB to unilaterally determine and impose said rates and notify beforehand its borrowing clients of any increase.

According to the Supreme Court, this clause violates the principle of mutuality of contracts under the Civil Code. Pursuant to this principle, a contract must bind both contracting parties. Its validity or compliance cannot be left to the will of one of them.

This binding effect is premised on the following: that any obligation arising from a contract has the force of law between the parties; and that there must be mutuality between the parties based on their essential equality. Any contract, which appears to be heavily weighed in favor of the parties so as to lead to an unconscionable result, is void.

Meanwhile, as in the PNB cases, the borrower is not prevented from questioning the unilateral increase in the interest made by the lender despite repeatedly paying the imposed interest rates and renewing the loan several times.

In this regard, the Supreme Court declared that the borrower’s silence cannot be construed as an acceptance of the lender’s imposition of these rates.

If the borrower would pay interest when it was not stipulated, the provisions of the Civil Code on solutio indebiti or natural obligations shall apply. In this regard, the legal principle of solutio indebiti requires that if something was received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. Moreover, the lender who accepts an undue payment in bad faith shall pay legal interest thereon and damages, if applicable.

Meanwhile, where the law on natural obligations applies, the borrower does not enjoy a right of action for reimbursement upon proof that he voluntarily paid the interest. Interest may be paid in money or in kind. If it was payable in kind, its value shall be appraised at the current price of the products or goods at the time and place of payment.

As a general rule, interest due and unpaid shall not earn interest. Nevertheless, the contracting parties may capitalize the interest due and unpaid as an added principal by stipulating that it shall earn new interest.

Moreover, interest due and unpaid shall earn legal interest from the time it is judicially demanded—that is, from the time a claim is being filed in court, even when the disputed contract fails to stipulate the same.

In this case, the legal rate of interest shall be 6 percent a year to be computed from either judicial or extrajudicial demand as defined under Article 1169 of the Civil Code.

In one case, the Supreme Court held that this rate is an affirmation of the contracting parties’ intent—that is, by their contract’s silence on a specific rate, then the prevailing legal rate of interest shall be the cost of borrowing money, and which shall not be susceptible to shifts in rate.

Source: Inquirer