By Katherine K. Chan, Reporter
PHILIPPINE BANKS’ loan growth posted its fastest pace in over a year in May as lagged effects of interest rate cuts drove lending for residents’ business activities, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.
Universal and commercial banks’ total outstanding loans, net of reverse repurchase agreements, grew by 12.1% year on year in May to P14.989 trillion from P13.37 trillion.
This was faster than the 11.4% expansion in April.
It was also the quickest lending growth seen in 15 months or since the 12.2% in February 2025.
“This reflects banks’ expectations of steady loan demand from businesses and households in Q2 2026,” the central bank said in a statement late on Tuesday.
Most or 53.8% of banks polled by the BSP expected businesses to sustain steady demand for credit in the second quarter of the year, while 52.9% saw steady loan demand from households, the central bank’s latest Senior Bank Loan Officers’ Survey showed.
Analysts noted that the impact of the central bank’s previous rate cuts may have helped sustain lending momentum among the country’s big banks.
“The strong double-digit growth in both bank lending and domestic liquidity suggests that the BSP’s earlier rate cuts are now gaining traction in the real economy,” Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said in a Viber message.
“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,” he added.
From August 2024 to February this year, the BSP delivered a total of 225 basis points in cuts, bringing its key policy rate to 4.25% by the end of its nearly two-year easing cycle.
Monetary policy adjustments typically take one-and-a-half to two years to fully transmit to the financial system, according to the central bank.
“The stronger loan growth in May reflects improving credit demand, the lagged benefits of earlier BSP rate cuts, and banks’ continued willingness to lend,” Union Bank of the Philippines (UnionBank) Chief Economist Ruben Carlo O. Asuncion said via Viber.
BSP data showed outstanding loans to residents climbed by 12.6% to P14.692 trillion in May from P13.046 trillion a year ago, a faster pace versus April’s 11.8%.
This accounted for the bulk of the sector’s total outstanding loans during the period, with the rest composed of loans to nonresidents.
For nonresidents, bank lending declined by 8.3% to P296.887 billion in May from P323.828 billion last year. This included loans by big banks’ foreign currency deposit units to nonresidents. It was a faster decline from the 7.9% drop in April
Based on BSP data, loans extended for residents’ production activities reached P12.67 trillion, up 11.7% annually from P11.347 trillion. This was an improvement from the 10.7% increase posted in April.
The BSP attributed this to increased lending to major industries, with loans to the electricity, gas, steam, and air-conditioning supply sector surging by 32.9%.
Lending for transportation and storage also jumped by 21.4%, wholesale and retail trade, and repair of motor vehicles and motorcycles by 10.1%, real estate activities by 7.3%, and manufacturing by 6.4%.
Meanwhile, big banks disbursed a total of P2.022 trillion in consumer loans, 19% higher than the P1.699 trillion lent out a year earlier.
“This is slightly slower than the previous month’s 19.6% growth, reflecting softer expansion in credit card and motor vehicle loans,” the central bank said.
In May, credit card loans rose by 26.3% year on year to P1.269 trillion, while motor vehicle loans increased by 10.2% to P540.9 billion, and salary-based general purpose consumption loans by 6.4% to P171.79 billion.
For UnionBank’s Mr. Asuncion, emerging inflation risks and global uncertainty could dampen loan growth in the coming months.
“While double-digit loan growth should remain supported by consumption, business expansion, and infrastructure-related financing needs. The current pace may moderate somewhat amid inflation risks and external uncertainties,” he said. “Nevertheless, credit growth remains a positive signal for domestic demand and overall economic activity.”
Philippine inflation has been above the BSP’s 3% target for four straight months since March, with the first-half average now at 4.8%.
This prompted the BSP to hike its benchmark rate for two straight meetings since April, bringing key borrowing costs to 4.75%.
The central bank monitors banks’ lending activities to track the transmission of monetary policy.
MONEY SUPPLY
Meanwhile, continued growth in private and public sector borrowings drove the country’s liquidity (M3) to climb by 12.8% to P20.604 trillion in May from P18.265 trillion in the prior year.
This was faster than the 12.2% increase logged in April, and marked the fastest money supply growth in nearly six years or since the 13.7% expansion in August 2020
“Domestic liquidity growth was driven mainly by the sustained expansion in borrowings by both the private and public sectors,” the BSP said in a separate statement. “The increase in domestic liquidity supports economic activity by facilitating consumption, lending, and investment.”
M3 is a measure of the amount of money in the economy that includes currencies in circulation, bank deposits, and other financial assets that are easily convertible to cash.
Based on preliminary BSP data, domestic claims picked up by 13.3% from 12.7% in April as they rose to P23.672 trillion from P20.891 trillion in May last year.
Claims on the private sector, which is largely composed of loans to production sectors and households, rose by 13.2% in May to P15.204 trillion, improving from 12.6% in the previous month.
“Credit to production sectors and households, mainly in the form of bank loans, continued to grow and support economic activity,” the BSP said.
Net claims on the central government likewise increased by 16.2% annually to P6.41 trillion in May. This was faster than 15.1% in April.
The central bank noted that this was driven by “the National Government’s issuance of debt securities and withdrawal of deposits from the BSP and banks to finance its spending.”
Claims on a sector refer to that sector’s liabilities to depository corporations such as banks and the central bank.
Meanwhile, net foreign assets (NFA) in peso terms went up by 9.1% to P7.153 trillion in May from P6.559 trillion in the same month in 2025.
Banks’ larger holdings of foreign currency-denominated debt securities boosted their NFA position by 16.4% to P776.001 billion.
The central bank’s NFAs also rose by 8.2% year on year to P6.377 trillion.
NFAs reflect the difference between depository corporations’ claims and liabilities to nonresidents.
On the other hand, M1 — which is considered a narrower measure of money supply comprising currency in circulation and current account deposit liabilities — was 9.5% higher at P7.982 trillion from P7.287 trillion a year ago.
The BSP said it will ensure that local bank lending and domestic liquidity conditions “remain consistent with its price and financial stability objectives.”
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