UBS Securities Pte. Ltd. sees the peaking of US interest-rate growth may hinder the Philippines’s credit growth next year.
UBS’s Asia-Pacific economic perspectives saw rising private credit from nearly 10 percent in the latter stages of 2012 to 18 percent in 2013, and it stabilized at those levels in 2014. A combination of stabilizing credit growth and diminishing marginal returns indicates that the credit cycle might be peaking.
However, a pickup in US interest rates could retard credit growth in the Philippines in 2015.
“Easy monetary conditions should support the growth of credit-growth expansion in early 2015 before US dollar rates start to rise, but we do not expect to see acceleration in loan growth, as in 2013,” UBS analyst Edward Teather said.
UBS said bank-deposit growth has fallen sharply in 2014, from a peak of 37 percent year on year (YOY) to closer to 17 percent YOY in September, while the loan-to-deposit ratio has risen.
“Universal and commercial bank loans have grown at an average of 17.4 percent, but this is just matching the pace at end-2013,” UBS said.
Last year’s growth accelerated from close to 13 percent to 17 percent. The lack of acceleration indicates that the credit cycle may be peaking.
UBS sees monetary conditions supporting the continuous uptrend in corporate credit to gross domestic product (GDP), although the impacts of increased credit on real GDP growth may be diminished.
“Domestic credit to GDP is rising, but is still at a moderate level compared to the 1990s boom period. External debt continues to fall relative to GDP. Consumer and corporate borrowings are growing at decelerating rates,” it said.
On the consumer side, real-estate lending is a key driver, while, on the corporate side, banks are providing more credit than the bond market.
The Bangko Sentral ng Pilipinas (BSP) tightened rules on bank lending to the real-estate sector, but reductions in interest rates since then will have encouraged an ongoing expansion in lending.
The constrained fiscal policy was one of the main reasons GDP growth disappointed in the third quarter.
UBS said lower inflation may mean that the BSP is unlikely to raise policy rates soon, but market rates are moving higher, consistent with less favorable financial-market conditions and higher US rates in 2015.
The Philippines will now struggle to meet its 6.5-percent to 7.5-percent growth target for 2014.
As a result, a budget revision has been passed, increasing the national budget by 15 percent to P2.6 trillion in 2015, and aiming to increase infrastructure outlay to 4 percent of GDP.