‘Tighter bank credit adds to Philippines growth pressures’
Tighter lending conditions for both households and businesses could emerge as another drag on Philippine economic growth in the second half, as banks turn more cautious and higher interest rates increasingly filter through to borrowers, a global bank economist said.
Manila, Philippines — Tighter lending conditions may emerge as another obstacle to Philippine economic growth in the second half, according to a global bank economist. Standard Chartered Bank Asia economist Jonathan Koh noted that business and consumer credit growth is showing signs of weakening, adding to pressures from weak investment, rising inflation, and reduced household spending.
Koh explained that banks are tightening credit conditions for both consumers and businesses, citing the Senior Bank Loan Officers' Survey by the Bangko Sentral ng Pilipinas (BSP). This more restrictive lending environment is partly due to mark-to-market losses on banks' government securities holdings, which have strained balance sheets and limited their ability to extend credit.
Despite banks having adequate capital buffers, these losses have somewhat reduced their flexibility. The tighter credit environment arrives as the Philippine economy is already facing a slowdown, with GDP growth dropping to 2.3% in the second quarter from 2.8% in the first quarter, bringing first-half growth to 2.6%. Standard Chartered lowered its full-year GDP growth forecast to 3.5%, near the lower end of the government's 3.5 to 4.5% target.
Financing conditions are likely to become a growing constraint as the BSP's previous rate hikes are passed on to lending rates. Business loan growth has already begun to slow, and will likely continue to do so as interest rate hikes from the BSP trickle down to consumers. Households are experiencing similar pressures, with credit card and salary loan growth moderating.
Citi predicts weak domestic demand will constrain the economy, but expects growth to pick up to the low-three percent range in the third quarter as easing inflation supports household incomes and consumption. The weaker growth outlook and tighter financial conditions have sparked debate over whether the BSP should raise rates again this month.
Standard Chartered has dropped its call for an August hike, while Citi remains optimistic about a 25-basis-point hike in August and another in October, arguing that the current 4.75% policy rate is still slightly above the BSP's 4.5% inflation forecast for 2027.
Written by urgent.news from Philippine Star Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
