Here's Why the Philippines' Credit Growth Is Projected to Go Down in the Coming Months

Unlike its Southeast Asian neighbors, the Philippines may be seeing its credit growth “declining” in the coming months. This is despite the fact that the country has been picking up pace in bank lending post-pandemic, according to research conducted by the Bank of America (BofA).

The report, based on credit growth indicators for the Association of Southeast Asian Nations (ASEAN), helps gauge how banks’ loan growth in the region is likely to shape up over the next few quarters. Findings showed only the Philippines is projected to see bank lending on a downward trend, which may be attributed to “external factors” or headwinds.

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“The Philippines has seen a faster recovery in credit growth [at] around nine to 10 percent,” the report said. “Directional trend remains on a declining trend — unchanged due to decrease in import growth, auto sales, and number of visitors.”

But according to BofA, actual credit growth is on the road to recovery, thanks to the growing demand for corporate loans, or capital expenditures (CAPEX) spending.

Loans disbursed by big banks amounted to about P11.8 trillion in March, based on figures from the Bangko Sentral ng Pilipinas (BSP). This signified a credit growth of 9.4 percent year-on-year, the fastest in 11 months, on the back of higher demand for production and consumer lending.

While inflation, which, as BofA cited, continues to pose risks to the country, was recorded at 3.8 percent in April, significantly lower than the 6.6 percent a year ago. The number, however, was higher than March's 3.7 percent — primarily influenced by rising food prices.

The Philippine economy grew by 5.7 percent from January to March, with financial and insurance activities as the top contributors. This was up from the 5.5 percent in the previous quarter, but still no better than the 6.4 percent in the same period last year.

Lukewarm credit growth in Southeast Asia

Outside the Philippines, loan growth in ASEAN neighbors Malaysia, Indonesia, Singapore, and Thailand are on a “flat” trend. This means the status is likely to be stable in the upcoming quarters.

Among the variables considered in the study are system liquidity; business or retail expectations; foreign exchange and interest rates; consumer prices; as well as external factors — all said to be related with the growth cycles of system credit demand.

Across the whole Southeast Asia, BofA expects a “tepid” credit growth, “on account of a patchy near-term exports outlook and uneven recovery in tourism.”