Bank lending, domestic liquidity post faster growth in May

Bank lending and domestic liquidity expanded at a faster pace in May, signaling stronger credit activity and improving economic momentum as earlier policy rate cuts by the Bangko Sentral ng Pilipinas (BSP) continued to gain traction.

Preliminary BSP data released Tuesday night showed that loans extended by universal and commercial banks grew by 12.1 percent in May, quicker than the 11.4-percent expansion recorded in April. Outstanding bank loans reached ₱14.98 trillion during the month.

The central bank said lending to residents, which accounted for the bulk of total outstanding loans, increased by 12.6 percent.

Loans to businesses rose by 11.7 percent, driven by stronger credit demand from key sectors, including electricity, gas, steam and air-conditioning supply, real estate, wholesale and retail trade, motor vehicle repair, manufacturing, and transportation and storage.

Meanwhile, consumer loans to residents grew at a slower 19 percent, easing from 19.6 percent in April due to softer expansion in credit card and motor vehicle loans.

The BSP monitors bank lending as one of the primary channels through which monetary policy supports economic activity.

At the same time, domestic liquidity, or M3, increased by 12.8 percent to ₱20.6 trillion in May from 12.4 percent growth in April.

The BSP said the expansion was mainly fueled by sustained borrowing by both the private and public sectors, alongside continued growth in bank lending that supported household consumption and business investment.

Government borrowing through debt securities and the withdrawal of deposits from the BSP and banks to finance public spending also contributed to the increase in money supply.

Higher net foreign assets likewise supported liquidity growth, with the BSP’s net foreign assets rising by 8.2 percent, while banks also posted gains due to increased holdings of foreign currency-denominated debt securities.

A narrower measure of money supply, M1, which includes currency in circulation and demand deposits, also expanded by 9.5 percent.

The BSP said it will continue to ensure that domestic liquidity remains consistent with its price and financial stability objectives.

Reyes Tacandong & Co. senior adviser Jonathan Ravelas said the sustained double-digit growth in both bank lending and money supply indicates that the BSP’s earlier interest rate cuts are beginning to stimulate the broader economy.

“Lower borrowing costs, improving business confidence, steady consumer spending, and continued government expenditures have encouraged more credit demand and increased liquidity in the financial system,” Ravelas said.

He added that the broad-based increase in lending—from business expansion to household spending and investment—points to strengthening domestic demand, although the BSP will still need to balance economic growth with inflation risks and global uncertainties.