Philippine salary-based loan growth quickens to 17.5% in September as card and auto loan growth slows

Implications for lenders

Faster bank growth in salary-based loans (17.5%) may tighten competition for employed borrowers, so non-bank lenders using payroll channels can review pricing and employer agreements. With consumer NPLs at 5.49% in July and inflation at 7.8%, affordability checks on wage-deduction loans can take account of rising living costs.

Implications

Facts

Outstanding loans of universal and commercial banks, net of reverse repurchase placements with the Bangko Sentral ng Pilipinas (BSP), reached PHP 15.27 trn at end-September, according to preliminary BSP data released on 5 November. ¹ Growth was 11.4% year on year, up from 11.0% in August. ² Loans for production activities of resident firms grew 11.0%, up from 10.6% in August. ³

Consumer loans to residents grew 16.2%, unchanged from 16.2% in August, to PHP 2.12 trn, or 13.9% of total loans. ⁴ Credit card receivables grew 22.8%, down from 23.3% in August, to PHP 1.34 trn. ⁵ Motor vehicle loans grew 5.0%, down from 5.8% in August, to PHP 542.0 bn. ⁶ Salary-based general purpose consumption loans grew 17.5%, up from 11.6% in August, to PHP 193.8 bn. ⁷

Domestic liquidity (M3) growth slowed to 9.3%, down from 11.2% in August. ⁸

Analysis

Time series: over three months the mix of consumer credit growth has shifted. Credit card growth eased from 24.5% in July to 22.8% in September, and motor vehicle loan growth from 7.0% to 5.0%. Salary-based loans moved the other way, from 9.9% in July to 17.5%. Total bank loan growth has stayed in a narrow band this year (chart). The shift comes as inflation reached 7.8% in October and the BSP's policy rate stands at 5.50%; the data do not show whether demand or bank supply drove the move.

Asset quality: the latest consumer NPL ratio by product is for July, when consumer loans had an NPL ratio of 5.49% and credit cards 5.34%, above the banking-system ratio of 3.27% in September.

Cross-country: Philippine vehicle lending is still growing, if slowly, while Indonesian bank vehicle loans shrank −9.7% in September. Malaysian household loans grew 5.3%, about a third of the Philippine consumer-loan pace.

Counterpoints and uncertainties

The September figures are preliminary and the BSP can revise them. The jump in salary-based loan growth comes from a small base (PHP 193.8 bn) and one month does not make a trend. Product-level NPL ratios for August and September are not yet published, so the credit quality of the new salary-based loans is not visible. High inflation could squeeze borrowers' disposable income and raise arrears with a lag.