Stronger loan growth in Philippine banking sector eyed

Amid slowdown in May.

Outstanding loans of Philippine universal and commercial banks grew 14.5% YoY in May from 15.4% in April, the slowest since August 2013.

According to a research note from Maybank ATR Kim Eng, growth in borrowing for production activities decelerated mainly due to three major sectors: manufacturing, utilities and wholesale/retail trade.

However, consumer loan growth ahs been on an upward trend in the past three months. Quarterly data that include thrift banks show the same trends.

Here's more from Maybank ATR Kim Eng:

Consumer loans, including mortgages, expanded 26.9% in 1Q15 and have shown sustained increased in the last four quarters. Auto and real estate loans have been the drivers. In contrast, non-consumer loan growth has been declining in the last four quarters.

We believe the main reason for the recent slowing of loan growth to production sectors is that nominal GDP growth also has been slowing. The two generally move together. Nominal GDP growth has slowed on subdued inflation and weak real GDP growth of 5.2% YoY in 1Q15.

A second more minor reason is that capital market fund-raising has been strong. The stock market was setting consecutive new record highs up until April while low interest rates made bond issuance attractive. Excluding banks' fund-raising in capital markets, growth in 1Q15 was 14.8% YoY

Our outlook is for GDP growth to accelerate in the coming quarters as government spending picks up. From 5.2% real GDP growth in 1Q15, we expect full-year growth of 6.4%. We believe that as the 2016 election comes around, both public and private spending will accelerate.