SLOWER credit growth could weigh on domestic demand as the central bank’s tightening cycle starts to bite, according to the University of Asia and the Pacific (UAandP).
In the August issue of ‘The Market Call,’ UAandP economists said credit conditions are beginning to cool as businesses and households become more cautious about taking on new debt amid elevated borrowing costs.
‘Continued lending to productive sectors should cushion the slowdown, but weaker construction and consumer credit could increasingly weigh on investment and consumption,’ the document read.
Data from the Bangko Sentral ng Pilipinas (BSP) showed that the growth of bank lending slowed to 9.8 percent year-on-year in June from 12.1 percent in May, reaching a four-month low as credit demand adjusted to elevated borrowing costs. Outstanding bank loans stood at P14.88 trillion.
The slowdown, however, was uneven across sectors. Lending to businesses grew 9.2 percent, led by those in the electricity, gas, steam and air-conditioning supply sectors. Lending to the latter expanded 22.6 percent.
Loans to wholesale and retail trade rose 7.6 percent while real estate lending grew 6.1 percent. Construction lending, however, contracted 13.9 percent year-on-year.
Consumer borrowing also moderated, with consumer loan growth easing to 17.8 percent in June from 19 percent in May. Credit card lending still grew 24.9 percent, while motor vehicle loans increased 8.6 percent.
‘The key risk is that further moderation in credit growth begins to drag on domestic demand,’ the UAandP noted.
The softer credit environment comes as UAandP expects economic growth to remain weak in the third quarter before gaining momentum toward year-end.
UAandP expects third0quarter growth to remain close to the 2.3 percent pace recorded in the second quarter, citing August flooding and delayed infrastructure spending as major factors.
The Philippine economy grew 2.3 percent in the second quarter of 2026, slower than the 2.8 percent expansion in the first quarter, according to the Philippine Statistics Authority (PSA).
UAandP economists expect growth to pick up in the fourth quarter as government infrastructure spending returns, with quarterly growth potentially moving above 4 percent.
‘The return of government infra spending, softer crude oil prices, and better demand conditions are tailwinds to watch out for,’ read the report.
The think tank’s expected recovery, however, faces continued price pressures, with inflation seen remaining above the BSP’s target through 2027.
The UAandP cited geopolitical tensions, agricultural damage from heavy rains, a potentially aggressive dry season, and minimum-wage adjustments as risks to the inflation outlook.