Banks see stronger loan demand in Q1

Philippines banks see stronger loan demand from companies and households in the first quarter despite the series of rate hikes delivered by the Bangko Sentral ng Pilipinas (BSP) to fight inflation last year.

Based on the results of the central bank’s Q4 2022 Senior Loan Officers’ Survey (SLOS), banks expect a net increase in overall loan demand both from corporate and household borrowers

“Based on the diffusion index (DI) method, banks indicated expectations of a net increase in overall demand for loans from businesses in the first quarter of 2023, driven by customers’ more optimistic economic outlook, as well as increased customer inventory and accounts receivable financing needs,” the BSP said.

Likewise, the central bank said that bank respondents are also expecting a net increase in overall consumer loan demand in the first quarter mainly due to higher household consumption and housing investment.

The economy accelerated by 7.6 percent last year, the fastest since the 8.8 percent growth recorded in 1976, from 5.7 percent in 2021, with the further reopening of the economy as strict COVID-19 quarantine and lockdown protocols were lifted.

For the fourth quarter of last year, the SLOS, covering 63 banks from Dec. 14 to Jan. 13 this year, showed a net increase in overall loan demand from across all firm classifications and categories of household loans.

The results of the survey also showed that banks expect a steady rise in commercial real estate and residential real estate loans from January to March.

According to the BSP, the DI-based approach pointed to anticipations of net rise in credit demand for commercial real estate loans amid banks’ more attractive financing terms and lower interest rates, as well as customers’ lack of alternative sources of funds.

Likewise, the central bank added that the DI approach also indicated a net increase in residential real estate loan demand for the first quarter, driven mainly by higher household consumption and housing investment.

Preliminary data from the BSP showed that rate hikes delivered by the Monetary Board has started eating into credit growth, as the rise in loans extended by big banks slowed to 13.7 percent in November from 13.9 percent in October.

As of end-November last year, universal and commercial banks disbursed P10.64 trillion in loans versus the P9.35 trillion released in end-November 2021.

Source: Philstar

Further rate hikes seen this year

The stronger-than-target economic growth last year gives the Bangko Sentral ng Pilipinas (BSP) more space to further tighten its policy this year as inflation remains well above the government’s two to four percent target range, according to economists.

ING Bank senior economist Nicholas Mapa said the BSP has more elbow room to raise key policy rates further in the first semester due to the above-consensus 7.6 percent gross domestic product (GDP) growth in 2022.

The expansion was slightly higher than the 6.5 to 7.5 percent target set by the Cabinet-level Development Budget Coordination Committee (DBCC) for 2022.

“The above-consensus GDP growth in 2022 should give the BSP space to tighten policy further in the first half of 2023. Inflation, although close to peak, remains well above target and could prove to be sticky over the coming months,” Mapa said in a commentary.

As revenge spending extended into the Christmas holidays, Mapa said the Philippines booked a faster-than-anticipated GDP growth of 7.2 percent in the fourth quarter of last year. The economy expanded by 7.6 percent in the third quarter of 2022.

“Although the fourth quarter GDP growth was impressive, we believe that momentum could finally moderate this year amid a challenging environment of still elevated inflation, rising borrowing costs and tight fiscal space,” Mapa said.

The BSP hiked key policy rates by 350 basis points to a 14-year high of 5.50 percent from an all-time low of two percent to tame inflation and stabilize the peso.

The peso slumped by as much as 15.7 percent, hitting a record low of 59 to $1 in October last year.

However, due to the series of aggressive rate hikes and active participation in the foreign exchange market by the BSP to smoothen volatility, the peso has since rebounded back to the 54 to $1 range.

“The peso has largely tracked the moves of regional peers and is up 2.4 percent for the year. The peso may benefit from the upside surprise in growth,” Mapa said.

Inflation, on the other hand, accelerated to 5.8 percent last year from 3.9 percent in 2021 as it quickened to a 14-year high of 8.1 percent in December from eight percent in November.

Mapa said the BSP would continue to take its lead from moves by the US Federal Reserve.

“Rapid-fire rate hikes may have already begun to impact capital formation, which posted the slowest growth this year. Just like for most other ASEAN central banks, we believe that the current rate hike cycle could be coming to an end soon, with the BSP likely taking its lead from moves by the FOMC (Federal Open Market Committee),” he said.

HSBC economist for ASEAN Aris Dacanay said the BSP may further raise interest rates by another 75 basis points this year to re-anchor inflation expectations.

“In terms of monetary policy, the high growth print in the fourth quarter of last year increases the likelihood that the BSP will raise rates further to ensure inflation expectations are sufficiently well anchored. We maintain our view that the BSP will continue to raise rates until pausing at 6.25 percent,” Dacanay said.

Jun Neri, lead economist at Ayala-led Bank of the Philippine Islands (BPI), said the strong GDP number last year gives monetary authorities space to raise key policy rates further.

“Given the strong GDP number, the BSP has the space to adjust its policy rate further and continue the fight against inflation. In case they decide to pause hiking, the strong GDP print gives them the chance to keep interest rates steady at elevated levels while building up their gross international reserves again,” he said.

Source: Philstar

Decline in earnings signals systemic risk–BSP

The recent increase in employment may not be enough to ensure higher incomes for Filipinos and guarantee the country’s recovery, according to the Bangko Sentral ng Pilipinas (BSP).

If the incomes of Filipinos in 2021 were adjusted for inflation, the BSP estimated that this would lead to a 10 percent drop compared to the 2018 level. If the income is not adjusted for inflation, incomes would only show a drop of 2 percent in 2021 from 2018.

Based on the 2021 Family Income and Expenditure Survey (FIES), the average annual family income reached P307,190 in 2021, lower than the P313,350 in 2018. If this income level is adjusted for inflation, the average annual family income in 2021 would only be P282,080.

“What these highlight is the need to sustain income growth, more so among families which were hardest hit by the pandemic. The improvements in 2021 are much welcomed, but the economy in 2022 is again facing a new round of systemic risk,” BSP said.

“Oil and commodity market disruptions are already eroding purchasing power and can undermine the country’s efforts towards full recovery,” it added in its 2022 Financial Stability Report (FSR).

The decline in earnings, BSP noted, was more pronounced in the National Capital Region (NCR) where average incomes fell 9.2 percent.

The BSP said, however, that the average income of the first five deciles at the national level slightly increased. This could be due to the financial assistance extended by the National Government.

“Unlike the national results, all deciles, except the first, experienced income losses. This is not unexpected, as the region (NCR) accounts for a significant portion of the total Covid-19 cases and is therefore likely to feel the worst impact from the pandemic restrictions,” the FSR stated.

Meanwhile, in terms of expenditure, BSP noted that it “consistently fell across all income deciles.” On average nationwide, household spending saw a decrease of 4.1 percent, BSP said.

The lower-income households, it added, saw a smaller decline in average spending. This still presents a concern given that basic necessities account for the bulk of these household expenses.

There was also a decline in food expenses among these households. It accounted for 58.2 percent of the total expenditure of families in the bottom 20 percent versus 31.9 percent in the upper 20 percent income group in the first semester of 2021.

This could explain the increase in the number of families whose incomes are not even enough to purchase their basic food needs during the pandemic.

“All things considered, the welfare loss from Covid-19 could be summarized by one detail: the pandemic has pushed more Filipino families below the per capita food threshold,” the BSP said.

Recently, the purchasing power of the peso was at its weakest in four years as more expensive food and fuel caused inflation to accelerate to a 14-year high in 2022, according to data from the Philippine Statistics Authority (PSA).

The PSA reported the country’s headline inflation rate reached 8.1 percent in December and averaged 5.8 percent in 2022, the highest since 2008.

Data from PSA showed the purchasing power of the peso fell by P0.0505 centavos to P0.8674 by the end of 2022 compared to P0.9179 at the end of 2021. This erosion of the purchasing power was the largest since 2018, when it declined by P0.0525 centavos.

This means every Filipino shelled out an additional P13.26 to buy goods worth P100 in 2022. Products worth P100 in 2018, which is the base year used to compute the Consumer Price Index (CPI), cost P113.26 last year.

Source: Business Mirror