Bank Lending Growth Eased to Near 2-Year Low in January ’26

Why It Matters

The slowdown signals waning credit demand and could force the BSP to reconsider its accommodative stance, affecting growth prospects for the Philippine economy.

Key Takeaways

• Lending grew 9.3% YoY, lowest since Feb 2024.
• Business loans rose 8.2%, weakest in 21 months.
• Manufacturing loans fell 6.9% for ninth month.
• Construction loans contracted 6.3% for fourth month.
• Retail loans up 21.3% but slowest three‑year growth.

Pulse Analysis

Bank credit growth is a primary conduit for monetary policy in the Philippines, translating rate adjustments into real‑economy activity. While the Bangko Sentral ng Pilipinas (BSP) has driven policy rates down to a three‑year low of 4.25%, the latest data reveal that the transmission is losing potency. The modest 9.3% increase in total outstanding loans marks the softest expansion since early 2024, underscoring a broader hesitation among borrowers to tap cheap financing.

The backdrop to this credit pullback is a corruption scandal involving state‑funded flood‑control projects, which has eroded confidence among corporate borrowers. Manufacturing firms now face a ninth straight month of loan declines, and construction credit has contracted for four months, reflecting delayed public‑sector spending. Conversely, consumer retail lending remains robust, buoyed by credit‑card and auto financing, yet its growth rate has decelerated to the slowest in three years, indicating that even household demand is feeling the strain.

For policymakers, the data present a dilemma. Further rate cuts may yield diminishing returns if governance concerns and fiscal uncertainty persist. Governor Eli Remolona has warned that a resurgence in global oil prices or a stronger dollar could compel the BSP to reverse course and raise rates. Sustainable credit expansion will likely depend on restoring public‑sector credibility, targeted fiscal stimulus, and a clear anti‑graft agenda to revive borrower confidence.