Barclays sees tighter credit rules as PHL liquidity stays high

After the Bangko Sentral ng Pilipinas kept policy rates on hold, British banking giant Barclays sees monetary authorities tightening rules for consumer loans and tinkering on reserve requirements for trust products in coming months. 

 

“The central bank remains concerned about liquidity, given strong inflows into the Philippines, and aims to moderate formation of asset price bubbles, Singapore-based economists at Barclays Prakriti Sofat and Avanti Save noted in an e-mail late Thursday.

 

“We believe possible further measures are tightening rules for consumer loans or adjusting reserve requirements for trust products,” the economists added.  

 

In a phone interview Friday, Sofat said, “We believe the central bank is keeping a close eye on liquidity and lending growth in the economy to contain risks of asset price bubbles... Macro-prudential measures may be employed in the coming two to three months.

 

“Our sense is that some adjustments on housing loans and automobiles related financing,” Sofat said, noting Philippine authorities may do “something similar in spirit” to capping credit card transactions and housing and automobile loans as what some ASEAN countries like Indonesia did. 

 

According to Bangko Sentral data, bank lending has been posting double digit growth in the last two years backed by ample liquidity. 

 

Loans from universal and commercial banks hit P3.13 trillion as of end-November, up 14 percent from P2.79 trillion year-on-year.

 

On Thursday the Bangko Sentral announced it was keeping policy rates at record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending but hinted at employing macroprudential measures. 

 

“The BSP also stands ready to deploy additional macroprudential measures to address any potential misalignment in asset prices,” Bangko Sentral Governor Amando Tetangco Jr. told reporters in a press conference on Thursday after the Monetary Board held its first policy-setting meeting for the year. 

 

On their toes

Monetary officials are on their toes to “ensure that liquidity remains adequate,” the central bank chief noted.

 

“On reserve requirements of trust products, rationalization will be open for discussion,” Barclay's Sofat told GMA News Online. 

 

Last Jan. 18, Bangko Sentral Assistant Governor Ma. Cyd Tuaño-Amador said they are studying how to rationalize trust products—particularly those unbridled by reserve requirements—being offered by banks. 

 

Among the trust products backed by required reserves are common trust and unit investment trust funds.

 

Near-term, however, policy rates will stay unchanged, Savi and Sofat noted in their e-mail message.

 

“But we think the BSP will start withdrawing monetary stimulus in Q4 (fourth quarter) with a 25bp (basis points) hike given rising inflation risks,” the economists wrote. 

 

And in spite of a slower inflation forecast of 3 percent this year by the Bangko Sentral, Savi and Sofat “... believe risks of higher inflation are rising, given robust growth and strong liquidity inflows.”

 

Barclays sees inflation settling at 4.1 percent in 2013 and 4 percent in 2014, which fits into the  upper end of the 3 to 5 percent where BSP targets the inflation rate."  — VS, GMA News