Lending growth seen to average 10% this year

Bank lending, which grew 9 percent as of November 2010, is seen to expand at around 10 percent this year, to be pushed forward in part by activities related to President Benigno Aquino III’s public-private partnership (PPP) program. This was according to Bank of the Philippine Islands president Aurelio R. Montinola III, who on Friday said bank loan activities will persist on the growth path as the lending rates will stay low during the year. "Lending growth last year was quite strong but I think lending growth averaging 10 percent this year is do-able," Montinola said at a Bangko Sentral ng Pilipinas event. Bank lending steadily grew from 5 percent at the start of 2010 to 12.5 percent in August, but had fluctuated from 9.8-8.4 percent since then. It was affected by the cost of borrowing, which was fairly low during the period, and by the amount of money in circulation or by so-called liquidity. Peso liquidity during the period was considered ample as indicated by fairly low inflation averaging only 3.8 percent for 2010, or lower than the midpoint of forecast inflation ranging from 3.5 percent up to 5.5 percent. Montinola considers the interest rate environment last year as rather abnormal in the sense that the benchmark 91-day Treasury bill rate averaged only 1 percent in the waning months last year. This compares, for instance, with the special deposit account (SDA) rate of the BSP, which is priced off its overnight borrowing rate of 4 percent. "I don't think this will continue for a long period. There will be some adjustments here [at some point forward]," Montinola said. As for the cost of borrowing, Montinola — widely seen as the next BSP governor — anticipates rates to remain low this year. "I believe the lending rates should stay low during the year — anywhere between slightly above the SDA rate of the BSP up to nine around percent," he said. He was citing rates applicable to consumer borrowers or those the banks extend to households and proverbial man on the street. Corporate borrowers and so-called prime individuals enjoy preferential rates, often lower than those extended to the average Filipino for having exhibited a spotless and therefore an excellent borrowing record. Heightened economic activities fed by low interest rates and readily available liquidity often translate to a period of high growth. Such growth, measured as the gross domestic product or GSP, already averaged 7.5 percent in the first nine months last year. — KBK/JE, GMANews.TV