PH has room to absorb more credit - BSP

By Prinz P. Magtulis, Philippine Star

Posted at Jan 17 2013 08:39 AM | Updated as of Jan 17 2013 10:11 PM

MANILA, Philippines - Despite a surge in capital inflows, the Philippine economy has room to absorb more credit in the form of loans, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

“If we look at the grant of credit and based on loans extended, our loan-to-GDP remains low compared to other countries at 35 percent,” BSP Governor Amando Tetangco Jr. said.

“I think we have more room for expansion but we have to be careful that that expansion does not create problems in the long run,” he added.

The proportion of loans to gross domestic product (GDP) is a gauge of how money from banks entering the system compares to the growth of the economy. Too low ratio may indicate credit is not expanding enough to finance a growing economy, while too high may result in overheating.

Overheating is a phenomenon where because of too much credit to boost growth, inflation spikes. Debunking analysts’ claims again, Tetangco said the amount of loans granted in the country has so far been behind other economies where loan ratios have reached 100 percent.

Also, as the country relies on domestic sources of growth this year, the central bank chief said loans to sectors such as infrastructure has space to expand, especially with the roll-out of projects under the government’s public-private partnership (PPP) program.

“We think that credit growth on this particular sector will appreciate,” he said. At present, two PPP projects have already been awarded, while seven others are already being bid out.

Nonetheless, Tetangco clarified there is no ideal loan ratio one country can aim for, reiterating the BSP is on guard against possible risks associated with the credit flows.

“There is no hard and fast rule. One just has to look at price pressures and potential asset price bubbles. We do not see that right now,” he explained.

Sought for comment, Emilio Neri Jr, an economist at the Bank of the Philippine Islands, said loan ratios, similar to loan growth, is a good indication of the economy’s absorptive capacity.

Agreeing with Tetangco, he said the economy is still safe from a repeat of the Asian financial crisis in 1997 when too much credit growth — reaching as much as 15 percent — resulted into skyrocketing asset prices and eventually, the crush of financial markets.

“We are basically catching up with our neighbors. We are making up for the anemic loan growth from 1998 to 2005, following the crisis,” he said in a phone interview.

“We are still safe now. And the BSP already have macroprudential tools unlike before, so basically it can already ensure that such crisis will not happen again,” he added.