Consumers, corporations encouraged to borrow due to lower rates

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) encouraged both consumers and corporations to borrow, citing low interest rates which have fallen to an average of 7.5 percent since the start of the year. Like most central banks the world over, the BSP has chosen to infuse liquidity in the Philippines’ financial system, a move that goads consumers to borrow to acquire cars, houses, and appliances. Cheaper loans also attract businesses, assisting them in their expansion. But at the same time, making liquidity available is just half of the solution. Banks have to lend and consumers and businesses have to borrow to keep economic activity going, the BSP chief said. Lending rates have hit its lowest in 2007 when the average was at 6.8 percent, Tetangco said, citing latest BSP data on bank lending rates. In 2008, the same rates have risen to 7.5 percent but have remained stable at the 7.8 percent average as of January to mid-March this year. Although consumers usually cut spending during crises, the current meltdown is different because the government can bring down interest rates to further stimulate economic activity. Lending growth has continued to accelerate as of January this year, with the year-on-year growth recorded at 18.8 percent as banks reacted to monetary easing by expanding their lending operations. Lending expansion is seen to slow down to half of its 2008 growth levels but data showed that as of January this year, core lending was still growing by 24.5 percent. Including lenders’ fund placements with the BSP, banks’ lending growth has grown by 18.8 percent, faster than the 17.5 percent increase in December, the BSP said. Without the BSP placements, lending grew faster than the 20.5-percent rate in the previous month. Loans for production activities, which accounted for the bulk of total loans, grew by 22.0 percent in January from 18.3 percent in December. These loans went to agriculture, hunting, and forestry (which grew by 44.6 percent); real estate, renting, and business services (36.1 percent); transportation, storage and communication (77.6 percent); wholesale and retail trade (24.1 percent); and electricity, gas and water (18.5 percent). - GMANews.TV