S&P Global Ratings expects substantial but slow growth in lending among emerging markets by 2025 as more businesses expand.

“Their corporate debt increased in the third quarter of 2023, while equity valuations stabilized. The increase in corporate debt reflects rising credit appetite by domestic lenders,” S&P Global said in its report released Monday.

The credit rater said demand for loans will gradually increase in the near term as central banks manage inflation to drive household consumption of various goods and services.

“However, still-high interest rates, combined with a softening in external demand, will likely constrain EM corporate profits and capital expenditure in 2024,” S&P said.

The Bangko Sentral ng Pilipinas maintained its policy rate at 6.5 percent, as BSP Governor Eli Remolona Jr. said there is still no “clear” sign that inflation is going down due to still high food and transport prices.

BSP’s data show lending in January by universal and commercial banks for production activities grew by 5.9 percent from 5.6 percent last December.

Meanwhile, consumer lending also rose by 25.2 percent from 23.9 percent.

“This stems from resilient economic growth, falling inflation and market expectations of rate cuts,” S&P said.

Indicators favorable

Inflation declined to 2.8 percent in January from 3.9 percent in December, according to the Philippine Statistics Authority.

These were within the BSP’s target range of 2 to 4 percent.

While demand for loans will likely increase, S&P Global said lenders will be selective.

“House prices fell elsewhere or outside Latin America because of struggling retail markets as prolonged high inflation limited purchasing power. A rapid intensification of residential and commercial property strains may test banks,” the credit-rating agency said.

S&P Global projects growth to improve to 5.9 percent this year from 5.6 percent in 2023 and 6.2 percent in 2025. For inflation, it expects 3.4 percent this year.