The Household Indebtedness survey found that loan innovation of commercial banks was growing bleak, with micro-lenders showing more appetite for risk as they increased their lending to the private sector. As of December 2023, household debt stood at P61 billion with P54.1 billion being owed to commercial banks. Of this P54.1 billion, 53% was to civil servants, while self-employed individuals accounted for 12%, and the private sector held 34%. This, according to the report, indicates a risk-averse approach to private sector lending by the local banking sector. “Looking at the distribution of loans by employment, banks have the highest amount of loans with government employees, while micro-lenders lend mostly to private sector employees and the unemployed,” the report revealed. The central bank raised an alarm over this tendency as it is averse to efforts to trigger economic activity through encouraging borrowing and spending in the economy.
Constricting the flow of capital to a set defined grouping could lead to a skewed capital environment that is harsh to the private sector, which happens to be the mainstay of economic activity. Micro-lenders showed more diversity in their lending portfolio, with 78% of their credit lending in the hands of the private sector, followed by civil servants at 19% and self-employed individuals at three percent. “Overall, there is diversity in lending by micro-lenders, while banks’ lending is highly concentrated on government employees,” BoB researchers stated. “This concentration exposes banks to fiscal challenges that could translate into restrained or loss of wages and resultant moderate real disposable incomes, reduced loan repayments capacity as well as limited access to credit reduced customer base.”
Further proving the dampened credit extension appetite amongst commercial loans, the survey found that 51.5% of total household loans were scheme loans, and 67.5% were deductions from source arrangements. “The tendency for commercial banks to lend to customers with traceable and secure sources of income, primarily through scheme loans with deduction-from-source payment arrangements, is a risk management strategy indicative of higher risk-aversion in the banking sector,” the survey revealed. A general expansion in borrowing by households is economically regarded to be welfare-enhancing and supportive of economic growth and development, the BoB researchers said. “It facilitates the acquisition of high-value assets, such as property and other income-generating assets, as well as consumption, which supports the production and provision of goods and services by various industries,” the central bank’s researchers stated.
