Philippine Bank Lending and Liquidity Growth Slow Amid Cautious Sentiment

Bank lending and liquidity growth in the Philippines experienced a notable slowdown in June, as reported by the Bangko Sentral ng Pilipinas (BSP). Outstanding loans from universal and commercial banks rose by 9.8% year-on-year, down from 12.1% in May, marking the slowest growth rate in four months since February’s 9.6%.

Domestic liquidity, measured as M3, also expanded at a slower pace of 10.6%, reaching approximately P20.5 trillion ($362 billion), compared to 12.8% growth in May. This decrease in lending and liquidity growth reflects a more cautious borrowing approach by both businesses and consumers amid prevailing economic uncertainties.

According to the BSP, the slowdown in loans for business activities was particularly pronounced, with growth easing to 9.2% from 11.7% in May. Key sectors such as construction, education, and various service activities displayed weakened borrowing, which the BSP attributed to a more cautious stance adopted by firms. Jonathan Ravelas, a senior adviser at Reyes Tacandong & Co., noted that companies are now prioritizing cash flow management and operational efficiency over aggressive expansion plans.

Consumer loans also showed a decline, with growth slowing to 17.8% from 19.0% in May, primarily due to reduced borrowing for credit cards and motor vehicles. Ravelas commented that while inflation has eased, many households are still prioritizing essential spending over new debt.

“Companies appear to be adopting a wait-and-see approach amid global uncertainties, focusing more on managing cash flow and improving operational efficiency rather than aggressively expanding.”Jonathan Ravelas, senior adviser at Reyes Tacandong & Co.

Despite the moderation in growth, Ravelas emphasized that loan growth remains positive, indicating ongoing economic expansion, albeit at a more sustainable pace. The BSP further highlighted that domestic claims increased by 10.9%, driven by borrowings from both private and public sectors, although this was slower than the 13.3% growth recorded in May.

In a related development, business sentiment in the Philippines showed signs of improvement in June, rebounding to a neutral confidence index (CI) of 0% after three months of negative territory. This shift was attributed to lower oil prices and increased consumer spending as schools reopened. The BSP's Business Expectations Survey indicated that firms are optimistic about future business conditions, anticipating stronger consumer demand and improved economic conditions over the next year.

Moreover, the BSP projected that inflation for July would likely settle between 5.6% and 6.6%, influenced by lower food prices that may offset rising costs of fuel and electricity. The central bank continues to monitor these developments closely, particularly the impact of ongoing geopolitical tensions in the Middle East on local economic conditions.