Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

 

Bulls of 1929 like their 1990s counterparts had their eyes glued on improving profits and stock valuations.  Not a thought was given to the fact that the rising tide of money deluging the stock market came from financial leverage and not from savings-Dr. Kurt Richebacher 

In this issue:

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

I. An Extension of 2024's Fiscal-Monetary Interplay

II. Debt-Led Growth: Fragile Foundations

III. Revenue Growth: Record Highs, Diminishing Returns

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

V. Net Income Surge: A Paradox of Profitability

VI. Sectoral Performance: Diverging Trends

VII. Top Movers: Individual Firm Highlights

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage

IX. Transparency and Accuracy Concerns

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

Debt-fueled profits mask deeper signs of strain across retail, real estate, and consumer sectors—even as policy easing and fiscal expansion continue.

I. An Extension of 2024's Fiscal-Monetary Interplay 

The PSEi 30’s Q1 2025 performance is largely a continuation of the trends established throughout 2024 and the past decade. 

Fundamentally, it reflects the model of "trickle-down" economic development, underpinned by Keynesian debt-financed spending. This model is anchored primarily on the BSP’s policy of "financial repression"—or sustained easy money—combined with fiscal stabilizers. It has manifested through the persistent "twin deficits," driven by a record-high "savings-investment gap," and rests on the “build and they will come” dogma. 

Q1 2025 also marks the initial impact of the BSP’s first phase of monetary easing, with Q2 expected to reflect the effects of the second round of policy rate and reserve requirement (RRR) cuts. 

At the same time, the all-time high Q1 fiscal deficit—relative to previous first quarters—was clearly reflected in the PSEi 30’s performance. 

Nota Bene:

PSEi 30 data contains redundancies, as consolidated reporting includes both parent firms and their subsidiaries.

Chart Notes:

1A: Based on current index members; may include revisions to past data

1B: Historical comparison; includes only members present during each respective period; based on unaudited releases

 II. Debt-Led Growth: Fragile Foundations

Figure 1

In Q1 2025, non-financial debt among PSEi 30 firms surged by 7.6% to a record Php 5.87 trillion, with a net increase of Php 413 billion, marking the third-highest quarterly rise since 2020. (Figure 1, upper window)         

In context, this debt level accounted for about 17.12% of total financial resources (bank and financial assets), up from 16.92% in 2024, reflecting increased leverage in the financial system 

In addition, bills payable for the top three PSEi 30 banks soared by 117.5%, rising from Php 393 billion to Php 854 billion, a net increase of Php 461 billion, excluding bonds payable. 

This dramatic increase in the bank’s short-term borrowing likely stems from a sharp decline in the banking system’s liquidity metrics—specifically, the cash and due-from-banks-to-deposits ratio and the liquid assets-to-deposits ratio. 

III. Revenue Growth: Record Highs, Diminishing Returns 

Gross revenues for the PSEi 30 rose by 3.92% to a record Php 1.78 trillion in Q1 2025. However, the net revenue increase of Php 67 billion was the smallest in the past four years, signaling a clear deceleration in growth momentum. (Figure 1, lower image)

Figure 2

This revenue softness partly reflected disinflationary trends, as the Consumer Price Index (CPI) fell to 2.3%—marking its third consecutive quarterly decline. (Figure 2, topmost chart) 

This occurred despite the economy operating near full employment, with the average unemployment rate at 4%, all-time high Q1 fiscal deficit, and amid record levels of bank credit growth, particularly in consumer lending. (Figure 2, middle graph) 

Nonetheless, the validity of the near-full employment narrative appears questionable. Our estimates suggest that approximately 32% of the workforce remains 'functionally illiterate,' raising concerns about the accuracy of PSA labor market data. 

Yet, the paradox is telling: even with aggressive fiscal stimulus and sustained easy money policies, economic returns appear to be diminishing. 

The PSEi 30’s revenue slowdown closely mirrored real GDP growth of 5.4% in Q1 2025, reinforcing the broader downtrend. (Figure 2, lowest diagram) 

Nevertheless, the PSEi 30 revenues accounted for 27% of nominal GDP in Q1 2025, underscoring their substantial footprint in the Philippine economy. Broadening the scope of PSE-listed firms in national accounts would likely magnify this contribution—while simultaneously highlighting the risks posed by mounting economic and market concentration and the fragile underpinnings of "trickle-down" economic development. 

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

Figure 3

Consumer sector stress was evident in the performance of PSE-listed firms. While retail nominal GDP grew by 7.9% and real consumer GDP by 4.9%, Q1 2025 sales revenue growth for the six largest non-construction listed retail chains—SM Retail, Puregold, SSI Group, Robinsons Retail, Philippine Seven, and Metro Retail Group—slowed to 6.8%, down from 8% in Q4 2024. This deceleration occurred despite aggressive supply-side expansion, underscoring deteriorating growth dynamics. (Figure 3, upper pane) 

Since peaking in 2022, both statistical (GDP) and real indicators (sales) have undergone significant depreciation. Downstream real estate consumer publicly listed retail chains, Wilcon Depot (WLCON) and AllHome (HOME), continue to grapple with substantial challenges, as rising vacancies further deepen the ongoing sales recession. (Figure 3, lower image) 

For example, WLCON reported a 2% quarter-on-quarter increase in store count, but only a 1.2% increase in sales YoY—highlighting excess capacity amid softening demand.

Figure 4

The food services sector also showed signs of strain, despite posting 10.3% revenue growth in Q1 2025—outpacing both nominal and real GDP. (Figure 4, topmost visual) 

Jollibee’s domestic operations, which accounted for 80% of total group sales, led the sector with a 14% gain. 

In contrast, McDonald’s reported an 11.5% sales contraction despite its 'aggressive store expansion' strategy, which includes plans to open 65 new outlets in 2025. This disparity underscores uneven, yet broadly weakening, performance across major retail chains. (Figure 4, middle chart) 

Even electricity consumption has recently deteriorated. Meralco’s electricity consumption growth slowed to 1.5% (in GWh), diverging from historical GDP correlations. This downturn signals weakening underlying demand, despite near-full employment and record-high bank credit expansion. (Figure 4, lowest graph) 

V. Net Income Surge: A Paradox of Profitability

Figure 5

Despite revenue challenges, the PSEi 30’s net income amazingly surged by 16.02% to a record Php 290.6 billion in Q1 2025, with an absolute increase of Php 40.12 billion, the second-highest since 2020. (Figure 5, topmost diagram)

This was driven by a significant increase in net income margin, which reached 16.3%, the highest since 2020, possibly due to asset sales (e.g., SMC’s divestitures). (Figure 5, middle window)

Excluding SMC’s asset sales, PSEi 30’s net income would have stood at Php 269.3 billion—reflecting only a 7.6% increase. This equates to a net profit rise of Php 19.12 billion, rather than the reported Php 40.12 billion

The record Q1 fiscal deficit likely bolstered incomes, both directly through government contracts (e.g., infrastructure projects) and indirectly via increased consumer spending. However, this came at the cost of record public debt and systemic leverage, which reached Php 30.7 trillion. Public debt hit an all-time high of Php 16.683 trillion. (Figure 5, lowest image)

The PSEi 30’s debt-to-net income ratio revealed that Php 1.42 in net debt additions was required for every peso of profit generated. In terms of absolute gains, Php 10.3 in new debt supported each peso of profit increase, highlighting deepening debt dependency.

 

Figure 6 

Paradoxically, despite record borrowing and improved net income, net cash reserves fell to 2022 levels, raising more concerns about systemic liquidity. (Figure 6, upper chart)

VI. Sectoral Performance: Diverging Trends 

By sector:  (Figure 6, lower table) 

Debt: The industrial sector recorded the largest percentage increase at 48.9%, but holding companies led in absolute peso gains Php 165.644 billon, followed by industrials Php 151.4 billion. 

Revenues: Banks achieved the highest percentage revenue growth at 9.8%, but industrials led in nominal terms with Php 17 billion in gains. 

Net Income: Holding and property sectors posted the largest percentage increases at 31% and 7.6%, respectively, with holding firms leading in peso terms Php 33.8 billion. 

Cash: The services sector saw the largest increases in both percentage (30.9%) and peso terms (Php 56 billion). 

VII. Top Movers: Individual Firm Highlights

Figure 7

By firm: (Figure 7, upper table) 

Debt: Ayala Corp, San Miguel Corporation (SMC), and Aboitiz Equity Ventures (AEV) recorded the largest peso increases at Php 74 billion, Php 70 billion, and Php 62 billion, respectively. LT Group (LTG) showed a substantial reduction of Php 24 billion. 

Interestingly, SMC reported a reduction in total debt—from Q4 2024’s record Php 1.56 TRILLION to Php 1.511 TRILLION in Q1 2025—despite substantial capital and operating requirements. This decline coincided with a surge in income, primarily driven by Php 21 billion in energy asset sales (San Miguel Global Power Holding LNG Batangas facility). Even excluding one-off gains, core profits rose by 31% to Php 19 billion. The company also strengthened its cash position, with cash reserves increasing by Php 57 billion year-on-year. How did this happen? (Figure 7, lower graph) 

Revenue: GT Capital (GTCAP) and Meralco posted the largest revenue increases at Php 15.6 billion and Php 9 billion, while SMC recorded the largest decrease at Php 31.8 billion. 

Net Income: SMC led with a Php 34 billion increase, driven by asset sales, while JG Summit (JGS) reported the largest decline at Php 7.2 billion. 

Cash: ICTSI and SMC posted the largest cash expansions at Php 79.9 billion and Php 57.6billion, while LTG (due to debt repayment) and AEV had the largest reductions at Php 38.2 and 15.015 billion 

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage 

Consider the potential impact on the PSEi 30, the broader PSE, and GDP when: 

-Bond vigilantes demand fiscal prudence, pushing interest rates higher

-Heavily leveraged consumer adopt austerity measures.

-Malinvestments from "build and they will come" industries, such as over saturation in real estate (26% residential condominium and office condominium vacancy rates and 22% per Colliers Philippines), and trade sectors, could lead to rising unemployment. 

These risks, compounded by diminishing stimulus effectiveness, threaten the sustainability of PSEi 30 performance and GDP growth. 

For instance, SMC’s business model has become increasingly reliant on recycling its borrowings or asset sales, making it wholly dependent on the sustainability of cheap money to refinance its rapidly growing debt. Neo-Keynesian economist Hyman Minsky famously characterized this as 'Ponzi finance.' (Minsky,1992) 

In essence, the structural risks are real—and growing more visible in each earnings season. 

IX. Transparency and Accuracy Concerns 

As previously stated: 

"The credibility of this analysis rests on disclosures from the Philippine Stock Exchange and related official sources. However, questions persist regarding the possible underreporting of debt and the inflation of both top-line and bottom-line figures by certain firms." (Prudent Investor, May 2025) 

These concerns underscore persistent governance challenges—particularly if elite-owned firms are engaged in systematically underreporting liabilities and overstating revenues or profits. Such practices not only contribute to the distortion of market signals but also foster moral hazard, eventually eroding investor confidence and undermining regulatory integrity. 

___ 

References 

Hyman P. Minsky, The Financial Instability Hypothesis* The Jerome Levy Economics Institute of Bard College May 1992 

Prudent Investor, The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts, Substack May 25, 2025

 

 

2024’s Savings-Investment Gap Reaches Second-Widest Level as Fiscal Deficit Shrinks on Non-Tax Windfalls

 

Deficits add up. Debt needs to be refinanced. And the larger the cost of servicing past spending, the less is available for the present. This is inherently and obviously a crackpot way to run a nation. It guarantees chaos, inflation, defaults and poverty—Bill Bonner 

In this issue

2024’s Savings-Investment Gap Reaches Second-Widest Level as Fiscal Deficit Shrinks on Non-Tax Windfalls 

In 2024, the Philippines' Savings-Investment Gap continued to widen to a near record, driven primarily by fiscal deficit spending—its effects and potential consequences discussed in two connected articles.

A. The Widening Savings-Investment Gap: A Growing Threat to Long-Term Stability

I. The Philippines as a Poster Child of Keynesian Economic Development

II. The Persistent Decline in Savings and the Investment Boom

III. Sectoral Investment Allocation and Bank Lending Trends

IV. Bank Lending Patterns and the Role of Real Estate

V. The SI Gap and the ’Twin Deficits’

VI. Conclusion: Deepening SI Gap a Risk to Long-Term Stability

B. 2024 Fiscal Performance: Narrower Deficit Fueled by Non-Tax Windfalls, Masking Structural Risks

I. 2024 Deficit Reduction: A Superficial Improvement? Revenue Growth: The Role of Non-Tax Windfalls

II. Government Spending Trends: A Recurring Pattern; Symptoms of Centralization

III. 2024 Public Debt and Debt Servicing Costs Soared to Record Highs!

IV. Public "Investments:" Unintended Market and Economic Distortions

V. Conclusion: Current Fiscal Trajectory a Growing Risk to Financial and Economic Stability 

A. The Widening Savings-Investment Gap: A Growing Threat to Long-Term Stability

I. The Philippines as a Poster Child of Keynesian Economic Development

 Figure 1

Businessworld, February 28, 2025: In 2024, the country’s savings rate — defined as gross domestic savings as a percentage of gross domestic product (GDP) — grew to 9.3%, reaching P2.47 trillion. Meanwhile, the investment rate was 23.7% of GDP, or P6.27 trillion, resulting in a P3.8-trillion gap. The savings-investment gap (S-I) gap — the difference between gross domestic savings and gross capital formation — shows a country’s ability to finance its overall investment needs. An S-I deficit occurs when a country’s investment expenditures exceed its savings, forcing borrowing to fund the gap. (Figure 1, topmost chart)

The Philippines may be considered one of the poster children of Keynesian economic development.

Given that aggregate demand serves as the foundation of the economy, national economic policies have been designed to stimulate and manage a spending-driven growth model, particularly through investment and consumption.

From a Keynesian perspective, the government is expected to compensate for any spending shortfall from the private sector by increasing its own expenditures.

The Savings-Investment Gap (SIG) serves as a key metric for tracking the evolution of aggregate demand management over time.

However, this ratio may be understated due to potential discrepancies in macroeconomic data—GDP figures may be overstated, while inflation (CPI) may be understated. Or, in my humble view, the actual savings rate may be even lower than indicated.

II. The Persistent Decline in Savings and the Investment Boom

The Philippines’ gross domestic savings rate has been in a downtrend since 1985, but it plummeted after 2018, coinciding with an acceleration in government spending. This trend worsened in 2020, when the pandemic triggered a surge in public expenditures. (Figure 1, middle image) 

From 1985 onward, the persistent decline in savings suggests a rise in household consumption, a "trickle-down effect," supported by accommodative monetary policy and moderate fiscal expansion.

Meanwhile, the investment rate surged between 2016 and 2019, driven by government-led initiatives, particularly the ‘Build, Build, Build’ program.

However, the 2020 collapse—where both savings and investment rates fell sharply—highlighted the government’s aggressive "automatic stabilization" response to the pandemic recession, which relied on RECORD deficit spending and monetary stimulus.

The Bangko Sentral ng Pilipinas (BSP) introduced unprecedented measures, including ₱2.3 trillion in liquidity injections, historic reductions in reserve requirements and policy rates, a managed USDPHP cap, and various financial relief programs.

III. Sectoral Investment Allocation and Bank Lending Trends 

The distribution of investments can be inferred from sectoral GDP contributions and bank lending trends. 

As of 2024, the five largest contributors to GDP were:

-Trade (18.6%)

-Manufacturing (17.6%)

-Finance (10.6%)

-Agriculture (8%)

-Construction (7.5%) (Figure 1, lowest graph) 

However, both manufacturing and agriculture have been in decline since 2000, suggesting that investments have largely flowed into trade, finance, and construction (including government-related projects).

Real estate, once a growing sector, peaked in 2015 and has since been in decline. Nevertheless, it remained the seventh-largest sector in 2024. It trailed professional and business services—which encompasses head office activities, architectural and engineering services, management consultancy, accounting, advertising, and legal services.

The top five GDP contributors accounted for 62.25% of total output, down from 66.06% in 2020, primarily due to the contraction in manufacturing and agriculture. 

IV. Bank Lending Patterns and the Role of Real Estate

Figure 2

While the real estate sector's share of real GDP declined, its share of bank lending expanded significantly. (Figure 2, topmost window) 

From 2014, real estate-related borrowing rose sharply, peaking in 2021, before moderating below 2022 levels. Nevertheless, real estate remained the largest client of the banking system in 2024, accounting for 19.6% of total loans. (Figure 2, middle diagram) 

That is—assuming banks have reported accurate data to the BSP. The reality is that banks often lack transparency regarding loan distribution and utilization (where the money is actually spent). 

Given that many retail investors (mom-and-pop borrowers) are very active in real estate, it is likely that actual exposure is understated, as banks may structure their reporting to circumvent BSP lending caps on the sector—it extended the price cap during the pandemic. 

In the meantime, the share of consumer lending has seen the most significant growth, surging after 2014 and becoming the dominant growth segment of bank credit. 

Meanwhile, the share of loans to the trade industry declined marginally, and manufacturing loans saw a steep drop—reflecting its GDP performance. 

Lending to the financial sector peaked in 2022 but has since declined, whereas credit to the utilities sector increased from 2014 to 2020 and has remained stable since. 

V. The SI Gap and the ’Twin Deficits’ 

The sharp decline in manufacturing underscores the structural imbalances reflected in the SI Gap, which in turn has contributed to the record "twin deficits" (fiscal and external trade). (Figure 2, lowest chart) 

As both consumers and the government spent beyond domestic productive capacity, the economy became increasingly reliant on imports to satisfy aggregate demand. 

Although the deficits have slightly narrowed from their pandemic peaks, they remain at ‘emergency stimulus levels’, posing risks to long-term stability. (see discussion on fiscal health below) 

These deficits have been—and will continue to be—financed through both domestic (household) and foreign (external debt) borrowing.

Figure 3 

The widening SIG has coincided with a decline in M2 savings growth, while the M2-to-GDP ratio surged, reflecting both credit expansion and monetary stimulus (including BSP’s money printing operations). (Figure 3, upper pane) 

External debt has also reached an all-time high in 2024, adding another layer of vulnerability. 

VI. Conclusion: Deepening SI Gap a Risk to Long-Term Stability 

The Philippines' growing S-I gap and declining savings rate reflect deep-seated structural imbalances that raise concerns about long-term economic stability. 

A shrinking domestic savings pool limits capital accumulation, increase dependence on external financing, and expose the economy to risks such as debt distress and currency fluctuations. 

B. 2024 Fiscal Performance: Narrower Deficit Fueled by Non-Tax Windfalls, Masking Structural Risks 

I. 2024 Deficit Reduction: A Superficial Improvement? Revenue Growth: The Role of Non-Tax Windfalls 

Inquirer.net, February 28: "The Marcos administration posted a smaller budget shortfall in 2024, but it was not enough to contain the deficit within the government’s limit as unexpected expenses pushed up total state spending. Latest data from the Bureau of the Treasury (BTr) showed that the budget gap had dipped by 0.38 percent to around P1.51 trillion last year. As a share of gross domestic product (GDP), the deficit improved to 5.7 percent last year, from 6.22 percent in 2023. But it still indicated that the government had spent beyond its means, requiring more borrowings that pushed the state’s outstanding debt load to P16.05 trillion by the end of 2024." (bold added)

Now, let us examine the performance of the so-called "public investment" in 2024.

Officials hailed the alleged improvement in the fiscal balance. One remarked, "This is the lowest since 2020 and shows the good work of the administration's economic team."

Another noted that "the drop in the deficit was ‘better than expected,’" implying that "the government no longer needs to borrow as much if the budget deficit is shrinking."

From my perspective, manipulating popular benchmarks—whether through statistical adjustments or market prices—as a form of political signaling to sway depositors and voters—is what I call "benchmark-ism."

While both spending and revenues hit their respective milestones, the 2024 fiscal deficit only decreased marginally from Php 1.512 trillion to Php 1.51 trillion. (Figure 3, lower image)

The so-called "improvement" mainly resulted from a decline in the deficit-to-GDP ratio, which fell from 6.22% in 2023 to 5.7% in 2024—a reduction driven largely by nominal GDP growth rather than actual fiscal restraint.

Authorities credit this "improvement" primarily to revenue growth.

While it's true that fiscal stimulus led to a broad-based increase in revenues, officials either deliberately downplayed or diverted attention from the underlying reality.

Figure 4

Despite record bank credit expansion in 2024, tax revenue only increased 10.8%, driven by the Bureau of Internal Revenue’s (BIR) modest 13.3% growth and the Bureau of Customs’ (BoC) paltry 3.8% rise. Instead, the real driver of revenue growth was an extraordinary 56.9% surge in NON-tax revenues, which pushed total public revenues up 15.56%. (Figure 4, middle image) 

As a result, the share of non-tax revenues spiked from 10.3% in 2023 to 14% in 2024—its highest level since 2007’s 17.9%! (Figure 4, topmost diagram) 

The details or the nitty gritty tell an even more revealing story. According to the Bureau of Treasury (February 27): "Total revenue from other offices (other non-tax, including privatization proceeds, fees and charges, grants, and fund balance transfers) doubled to PHP 335.0 billion from PHP 167.2 billion a year ago and exceeded the P262.6 billion revised program by 27.56% (PHP 72.4 billion) primarily due to one-off remittances." (bold added)

To emphasize: ONE-OFF remittances!

Revenues from "Other Offices" doubled in 2024, with its share jumping from 4.4% to 7.6%.

If this one-time windfall hadn’t occurred, the fiscal deficit would have exploded to a new record of Php 1.84 trillion! 

Despite the minor deficit reduction, public debt still surged. 

Public debt rose by 9.82% YoY (Php 1.435 trillion) in 2024—higher than 8.92% (Php 1.2 trillion) in 2023. (Figure 4, lowest graph) 

Was the increased borrowing in 2024 a response to cosmetically reducing the fiscal deficit? 

And that’s not all.

II. Government Spending Trends: A Recurring Pattern; Symptoms of Centralization

Figure 5

For the sixth consecutive year, the government exceeded the ‘enacted budget’ passed by Congress. The Php 157 billion overrun in 2024 was the largest since the post-pandemic recession in 2021, when the government implemented its most aggressive fiscal-monetary stimulus package. (Figure 5, topmost chart)

More importantly, this repeated breach of the "enacted budget" signals a growing shift of fiscal power from Congress to the executive branch.

Looking ahead, 2025’s enacted budget of Php 6.326 trillion represents a 9.7% increase from 2024’s Php 5.768 trillion.

The seemingly perpetual spending growth has been justified on the assumption of delivering projected GDP growth. 

While some "experts" claim the Philippines is becoming more ’business-friendly,’ the growing expenditure-to-GDP ratio tells a different story:

-The government is increasingly centralizing control over economic resources.

-This trend began in 2014, accelerated in 2016, and peaked in 2021 at 24.1%—the first breach of the enacted budget. After marginally declining to 21.94% in 2023, it rebounded to 22.4% in 2024. (Figure 5, middle image)

However, these figures only account for public spending. When factoring in private sector funds allocated to government projects, the true extent of government influence could easily exceed 30% of economic activity.

Of course, this doesn’t come for free. Government spending is funded through taxation, borrowing, and inflation. 

The more the government "invests," the fewer resources remain for private sector growth—the crowding out effect. 

This spending-driven economic model has distorted production and price structures, evident in: 

-The persistent "twin deficits"

-A second wave of inflation (Figure 5, lowest visual) 

III. 2024 Public Debt and Debt Servicing Costs Soared to Record Highs!

Figure 6

And surging public debt is just one of the consequences of crowding out the private sector. 

Public debt-to-GDP rose from 60.1% in 2023 to 60.7% in 2024—matching 2005 levels. (Figure 6, topmost diagram) 

More strikingly, debt service (interest + amortization) as a share of GDP surged from 6.6% in 2023 to 7.6% in 2024—its highest since 2011.

In fact, both debt-to-GDP and debt service-to-GDP in 2024 exceeded pre-Asian Crisis levels (1996-1997). 

Rising debt service costs imply that: 

1 Government spending will increasingly be diverted toward debt payments or rising debt service costs constrain fiscal flexibility, leaving fewer resources for essential public investments

2 Revenues will suffer diminishing returns as debt servicing costs spiral (Figure 6 middle window)

3 Growing risks of inflation (financial repression or the inflation tax)—as government responds with printing money

4 Mounting pressures for taxes to increase 

The principal enabler of this debt buildup has been the BSP’s prolonged easy money regime. (Figure 6, lowest chart)

Figure 7

The banking system has benefited from extraordinary BSP political support, including: Official rate and RRR cuts, liquidity injections, USDPHP cap and various subsidies and relief measures 

The industry has also functioned as a primary financier of government debt via net claims on central government or NCoCG), with banks acquiring government debt—reaching an all-time high in 2024. (Figure 7, topmost window)

IV. Public "Investments:" Unintended Market and Economic Distortions

This policy stance of propping up the banking system comes with unintended consequences. 

Bank liquidity has steadily declined—the cash-to-deposit ratio has weakened since 2013, mirroring the rising deficit-to-GDP ratio. (Figure 7, middle graph) 

Market distortions are also evident in declining stock market transactions and the PSEi 30’s prolonged bear market—despite interventions by the so-called "National Team." (Figure 7, lowest chart)

V. Conclusion: Current Fiscal Trajectory a Growing Risk to Financial and Economic Stability 

So, what’s the bottom line? 

Government "investment" is, in reality, consumption. 

It has fueled economic distortions, malinvestment, and ballooning public debt—ultimately crowding out private sector investment and jeopardizing fiscal sustainability. 

Political "free lunches" remain popular, not only among the public but also within the “intelligentsia” class or the intellectual cheerleaders of the government.

As we warned last December: 

"Any steep economic slowdown or recession would likely compel the government to increase spending, potentially driving the deficit to record levels or beyond. 

Unless deliberate efforts are made to curb spending growth, the government’s ongoing centralization of the economy will continue to escalate the risk of a fiscal blowout. 

Despite the mainstream's Pollyannaish narrative, the current trajectory presents significant challenges to long-term fiscal stability." (Prudent Investor 2024)

 ___

References: 

Prudent Investor, Debt-Financed Stimulus Forever? The Philippine Government’s Relentless Pursuit of "Upper Middle-Income" Status December 1, 2025

 

 

Philippine Uni-Comm Bank Lending in 2024: Why Milestone Bank Credit Expansion and Systemic Leveraging Extrapolates to Mounting Systemic Fragility

 

Credit Expansion No Substitute for Capital. These opinions are passionately rejected by the union bosses and their followers among politicians and the self-styled intellectuals. The panacea they recommend to fight unemployment is credit expansion and inflation, euphemistically called an "easy money policy"—Ludwig von Mises 

In this issue

Philippine Uni-Comm Bank Lending in 2024: Why Milestone Bank Credit Expansion and Systemic Leveraging Extrapolates to Mounting Systemic Fragility

I. Challenging the BSP’s Easing Cycle Narrative

II. How BSP’s Credit Card Subsidies Materially Transformed Banking Business Model

III. Bank Lending to Real Estate Expanded in 2024, Even as Sector’s GDP Slumped to All-Time Lows!

IV. Credit Intensity Hits Second-Highest Levels!

V. Redux: The Debt-to-GDP Myth: A Background

VI. The GDP is Mostly About Debt: 2024 Public Debt-to-GDP Reaches Second Highest Level Since 2005!

VII. The Mirage of Labor Productivity

VIII. Conclusion 

Philippine Uni-Comm Bank Lending in 2024: Why Milestone Bank Credit Expansion and Systemic Leveraging Extrapolates to Mounting Systemic Fragility 

Universal-commercial bank lending performance in 2024 provides some critical insights. Combined with public debt and GDP, these reveal rising financial and economic fragilities. 

I. Challenging the BSP’s Easing Cycle Narrative 

Inquirer.net, February 13, 2025: "Bank lending posted its fastest growth in two years to cross the P13-trillion mark in December, as the start of the interest rate-cutting cycle and the typical surge in economic activities during the holiday season boosted both consumer and business demand for loans. Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that outstanding loans of big banks, excluding their lending with each other, expanded by 12.2 percent year-on-year to P13.14 trillion in the final month of 2024, beating the 11.1-percent growth in November. That was the briskest pace of credit growth since December 2022." 

While the BSP kept its policy rate unchanged this week, it has engaged in an 'easing cycle' following three rate cuts, a substantial RRR reduction, and possibly record government spending in 2024.

Figure 1

The notion that the BSP's easing cycle has driven bank lending growth is not supported by the data. While December saw the "briskest...since December 2022," the 13.54% growth rate in that earlier period occurred near the peak of a hiking cycle, suggesting that neither rate hikes nor cuts significantly influence growth rates.

Official rates peaked in October 2023, ten months after the December 2022 lending surge.

II. How BSP’s Credit Card Subsidies Materially Transformed Banking Business Model 

Unlike the BSP's 2018 interest rate cycle, where hikes coincided with falling bank lending rates, the current credit market anomalies likely reflect distortions caused by the BSP's pandemic-era policies. These included an interest rate cap on credit cards and various relief measures. (Figure 1, topmost image)

Specifically, the BSP's interest rate cap in September 2020 significantly reshaped or transformed the banking system's business model, demonstrably shifting focus from business to consumer loans. 

The consumer share of universal-commercial (UC) bank loans surged by 27.4% over four years, increasing from 9.5% in 2020 to 12.1% in 2024. (Figure 1, middle window)

The biggest segment growth came from credit cards and salary loans:

-Credit card loans grew at a 22.3% CAGR from 2020 to 2024, increasing their share from 4.6% to 7.1% of total loans. Since 2018, their share has more than doubled from 3.4% to 7.1%. (Figure 1, lowest graph)

-Salary loans grew at an 18.07% CAGR over the same period, expanding their share from 0.9% to 1.2%.

Figure 2

-December's month-on-month (MoM) growth of 3.38% marked the highest since January 2022's 3.98%. Contrary to the assumption of seasonality, the highest monthly growth rates have not been confined to the holiday season. (Figure 2, topmost diagram) 

This astronomical growth in consumer credit, further fueled by December's reacceleration, underscores the substantial leveraging of household balance sheets.  

III. Bank Lending to Real Estate Expanded in 2024, Even as Sector’s GDP Slumped to All-Time Lows! 

In 2024, real estate (Php 222.72 billion) and credit cards (Php 212.1 billion) saw the largest nominal increases in lending. Electricity and Gas, and trade, followed. (Figure 2, middle chart) 

Supply-side real estate loans accounted for 20.5% of total UC bank loans at year-end. This figure excludes consumer mortgage borrowing. 

However, while real estate's GDP share hit an all-time low of 5.4% in 2024, bank exposure to the sector reached its second-highest level. In Q3, BSP data revealed that real estate prices had entered deflationary territory. (Figure 2, lowest pane) 

The continued decline in the sector's GDP raises mounting risks for banks. 

Rising real estate loan growth does not necessarily indicate expansion but rather refinancing efforts or liquidity injections to prevent a surge in delinquencies and non-performing loans.

Figure 3

Moreover, key sectors benefiting from BSP’s rate policies—construction, trade, finance, and real estate—continue to represent a significant share of UC bank portfolios, which share of the GDP has also been rising, posing as systemic risk concerns. (Figure 3, topmost chart) 

IV. Credit Intensity Hits Second-Highest Levels!

A broader perspective reveals more concerning trends.

UC total bank loans grew by 10.8% year-on-year, from Php 11.392 trillion in 2023 to Php 12.81 trillion in 2024 (a net increase of Php 1.42 trillion). In comparison, nominal GDP grew by 8.7%, from Php 24.32 trillion to Php 26.44 trillion (a net increase of Php 2.12 trillion).

This gives a 'credit intensity' of Php 0.67—the amount of bank lending needed to generate one peso of GDP—the highest since 2019. This means UC bank lending has recovered to pre-pandemic levels, while GDP hasn't. 

Factoring in public debt (excluding guarantees), 2024 saw a sharp rise in credit dependency. Credit intensity from systemic debt (public debt + bank lending, excluding capital markets and shadow banking) reached its second-highest level ever, trailing only the peak of 2021. 

It now takes Php 1.35 of debt to generate one peso of GDP, highlighting diminishing returns of a debt-driven economy. (Figure 3, middle image) 

The mainstream thinks debt is a free lunch! 

V. Redux: The Debt-to-GDP Myth: A Background

The BSP’s trickle-down policies operate under an architectural framework called "inflation targeting."

Though its stated goal is to 'promote price stability conducive to balanced and sustainable growth of the economy,' it assumes that inflation can be contained or that the inflation genie can be kept under control.

Its easy money regime has been designed as an invisible tax or a form of financial repression—primarily to fund political boondoggles—by unleashing "animal spirits" through the stimulation of "aggregate demand" or GDP. At the same time, GDP growth is expected to increase tax collections. 

The fundamental problem is that the BSP has no control over the distribution of credit expansion within the economy. 

As it happened, while the "liberalized" consumer-related sectors were the primary beneficiaries, distortions accumulated—principally as the elites took advantage of cheap credit to pursue "build-it-and-they-will-come" projects. 

The result was the consolidation of firms within industries and the buildup of concentration risk. Soon, the cheap money landscape fueled the government’s appetite for greater control over the economy through deficit spending. 

Thus, the "debt-to-GDP" metric became the primary justification for expanding government spending and increasing economic centralization.

This race toward centralization through deficit spending intensified alongside the elite’s "build-it-and-they-will-come" projects during the pandemic.

VI. The GDP is Mostly About Debt: 2024 Public Debt-to-GDP Reaches Second Highest Level Since 2005!

Once again, the consensus has a fetish for interpreting debt-to-GDP as if it were an isolated or standalone factor. It isn’t.

In the recent past, they cited falling debt-to-GDP as a positive indicator. However, let’s clarify: since the economy is interconnected—one dynamic entwined with another, operating within a lattice of interrelated nodes—such a simplistic view is misleading.

When the BSP forced down rates to reinforce its "trickle-down" policies, the consequences extended beyond public spending, affecting overall credit conditions. This policy catalyzed a boom-bust cycle. 

As such, when the public debt-to-GDP declined between 2009 and 2019, it was primarily because bank credit-to-GDP filled most of the gap. 

The proof of the pudding is in the eating: systemic leverage-to-GDP remained range-bound throughout that decade. Debt was merely transferred or juggled from the public to the private sector. 

GDP growth, in large part, was debt-driven.

Yet, the pandemic-era bailout fueled a surge in both public debt-to-GDP and bank credit-to-GDP. Public debt-to-GDP (excluding guarantees) reached 60.72%—its second-highest level after 2022—following the BSP’s COVID-era bailout, which also marked the highest rate since 2005. 

It’s worth remembering that Thailand—the epicenter of the 1997-98 Asian Crisis—had the lowest debt-to-GDP at the time. (Figure 3, lowest table) 

More importantly, public debt has anchored government spending, which has played a crucial role in shaping Philippine GDP since 2016.

V. Systemic Leverage Soars to All-Time Highs! 

Figure 4

On a per capita basis, 2024 debt reached historic highs, increasing its share of per capita GDP (both in nominal and real terms). (Figure 4, topmost visual)

Simply put, rising debt levels have been eroding whatever residual productivity gains are left from the GDP. 

Alternatively, this serves as further proof that GDP is increasingly driven by debt at the expense of productivity. 

It also implies that the deepening exposure of output to credit is highlighting its mounting credit risk profile. 

In 2024, UC bank loans-to-GDP hit 48.5%, the second-highest since 2020 (49.7%), indicating crisis lending via easy money policies. 

Systemic leverage reached a record 109.2% of GDP, surpassing 2022 ATH. (Figure 4, middle chart) 

Despite a Q4 2024 liquidity spike (M3), consumers struggled; household GDP slowed, suggesting households are absorbing increasing leverage while enduring the erosion of purchasing power in the face of inflation. (Figure 4, lowest diagram)

Figure 5

Another point: The growth rate of systemic leverage has shown a strong correlation with the CPI since 2013. However, it appears to have deviated, as rising systemic leverage has yet to result in an accompanying increase in the CPI. Will this correlation hold? (Figure 5, topmost image) 

VI BSP’s ‘Trickle-Down Policies’ Steered a Credit Card and Salary Loans Boom (and coming Bust)

There is more to consider. The banking model's transformation toward consumers didn’t happen overnight; it was the result of cumulative easy money policies that intensified during the pandemic. 

Our central premise: while bank expansion fueled inflation, the pandemic-induced recession—marked by income loss—and, most notably, the BSP’s easy money emergency response (including historic interest rate and RRR cuts, various relief measures such as credit card subsidies, the USDPHP cap, and the unprecedented Php 2.3 billion BSP injections) sparked a consumer credit boom, which subsequently triggered the second wave of this inflation cycle. 

Though the BSP’s intent may have been to compensate for consumers' income losses in order to stabilize or protect the banking system, the economic reopening further stirred up consumers’ appetite for credit, fueling demand amid a recovering, fractured, and impaired supply chain. 

Debt-financed government spending also contributed to the surge in aggregate demand. Together, these factors spurred a rise in "too much money chasing too few goods" inflation. 

The inflation genie was unleashed—yet it was conveniently blamed by everyone on the "supply side." The underlying premise of the echo chamber was that the demand-supply curve had been broken!  Yet, they avoided addressing the question: How could a general price increase occur if the money supply remained stable? 

Ironically, the BSP calibrated its response to the inflation cycle by adjusting interest rates in line with its own interest rate cycle! In other words, they blamed supply-side issues while focusing their policies on demand. Remarkable! 

The BSP’s UC bank credit card and salary loan data provide evidence for all of this (Figure 5 middle and lowest graphs): the escalating buildup of household balance sheets in response to the loss of purchasing power, the CPI cycle, and the BSP and National Government’s free money policies.

Figure 6

It’s also no surprise that the oscillation of UC bank loan growth has mirrored fluctuations in the PSEi 30. (Figure 6, topmost window) 

Unfortunately, the law of diminishing returns has plagued the massive growth of consumer credit, leading to its divergence from consumer spending and PSEi 30 flows. 

As an aside, the upward spiral in cash in circulation last December and Q4 —reflecting both liquidity injections for the real estate industry and pre-mid-term election spending—likely points to higher inflation and the further erosion of consumer spending power. (Figure 6, middle chart) 

Is it any wonder that self-reported poverty ratings and hunger have surged to record highs? 

Does the path to 'middle-income status' for an economy translate into a population drowning in debt? 

VII. The Mirage of Labor Productivity

Businessworld, February 10, 2025: The country’s labor productivity — as measured by gross domestic product per person employed — grew by 4.5% year on year to P456,342 in 2024. This was faster than the 2.7% a year earlier and the fastest in seven years or since the 8.7% in 2017. (Figure 6, lowest image)

While this suggests improving efficiency, it fails to account for GDP’s deepening dependence on credit expansion. When growth is primarily debt-financed, productivity gains become illusory. 

Credit isn’t neutral. Its removal would cause the 'debt-driven GDP-labor productivity' 'castle in the sand' to crumble 

VIII. Conclusion  

The 2024 UC bank lending data reveals critical economic trends: 

>A structural shift in the banking business model, driven by the BSP’s inflation-targeting and pandemic rescue policies. 

>Mounting concentration risks due to industry consolidations and growing sector fragility.

>Public debt-to-GDP reaching its second-highest level since 2005, while systemic leverage has hit an all-time high.

Diminishing returns from the increasing dependence on systemic credit—bank expansion and public debt—highlighting the risks of financial and economic vulnerabilities and instability.

The Philippine political economy operates with a very thin or narrow margin for error.

In an upcoming issue, we are likely to address the banking system's 2024 income statement and balance sheets.