Watch out for rapid credit growth, Asia urged

Regional News

The International Monetary Fund has urged the Philippines and other emerging Asian economies to watch out for rapid credit growth and implement policies to ensure this will not result in overheating.

The institution noted how substantial liquidity in most Asian economies enabled their respective banks to extend more loans.

“Policymakers should remain focused on potential risks to financial stability and the real economy from lingering financial imbalances, including rapid credit growth,” the IMF said in a report on the outlook on Asia-Pacific economies.

In the case of the Philippines, bank lending has expanded by a robust pace this year due to the significant rise in the banking sector’s resources.

Current loan portfolio of universal and commercial banks grew by about 19 percent from a year ago—over four times faster than the 4-percent growth of the economy.

This has been supported by rising resources of Philippine banks. Total resources of the banking sector in the country amounted to P7.3 trillion by the end of June this year—up by 12.6 percent from the P6.48 trillion reported in the same period last year.

“Depending on country circumstances, policymakers should be prepared to use monetary, macro-prudential, and exchange rate policies to limit financial imbalances that could jeopardize macroeconomic stability,” the IMF said.

Currently, emerging economies in Asia are driving growth of the global economy. While they are performing well, the IMF said these economies should be wary of the potential ill effects of rapid credit growth.

When banks extend more loans, inflationary problems result, which would be bad for an economy.

Banks in the Philippines have increased lending activities by nearly 20 percent. Some people have also urged the institutions to extend more loans to accelerate growth of the economy, saying that the banks have enough resources to back them up.

At present, banks have about P1.6 trillion placed in a special deposit account facility of the Bangko Sentral ng Pilipinas.

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By: Michelle V. Remo
Source: Philippine Daily Inquirer, October 15, 2011
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