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S&P Global: Philippine credit growth to ease to as low as 7%

Philippine credit growth could decelerate even further to single-digit levels to reflect the impact of higher inflation and interest rates, global credit watcher S&P Global Ratings said in a recent report.

According to the “Philippine Banks In 2023: Slower Growth, Strong Fundamentals” report, S&P expects credit growth to slow to 7% to 9% this year, following the rebound recorded in 2022.

“Credit demand recovery in 2022 was driven by corporates, housing loans, and credit cards… Slower economic growth, higher inflation and interest rates will dampen credit demand,” it said.

Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) earlier this month showed that outstanding loans by big banks net or reverse repurchase (RRP) placements increased by 10.4% to P10.71 trillion in January.

The credit growth reflected a deceleration from the 13.7% recorded last December, and its the slowest pace in nine months since April 2022’s 10.1%.

Meanwhile, inflation clocked in at 8.6% in February to mark the first deceleration in six months, but still remained above the target range of 2% to 4%.

The central bank expects inflation to average 6.1% this year, before easing to within the target range in 2024 at 3.1%.

Core inflation, which excludes prices of food and fuel, accelerated to 7.8% in February from 7.4% the previous month, marking the fastest in over 22 years since 8.2% in December 2000.

“Elevated core inflation could spur further rate hikes… Full effect of rate hikes will be felt this year as loan yields increase with a lag,” the S&P report read.

The Monetary Board of the BSP has already hiked key policy rates by 400 basis points since May 2022, with the latest being a 50-basis point increase that took effect on February 17.

“Nonetheless, bank profitability should benefit from higher margins. Funding costs will rise gradually as liquidity is still comfortable,” S&P said.

For its part, the BSP said it will continue to ensure that liquidity and lending conditions remain in line with its primary mandate of ensuring price and financial stability.

“Brisk credit growth and adequate liquidity will continue to sustain the momentum of economic growth,” it said in a separate statement released last week. — RSJ, GMA Integrated News