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KB Lending Contracts by 0.6 Percent in June 2006

08.15.2006

Commercial bank (KB) loans declined by 0.6 percent year-on-year to P1.584 trillion in June 2006, a turnaround from the 1.1 percent growth posted in the previous month.    On a month-on-month basis, KB loans declined by 1.5 percent in the same month compared to the 3.3 percent growth  a month-ago.

Outstanding loans to most sectors declined in June, particularly for construction (-12.7 percent); agriculture (-8.0 percent); manufacturing (-7.1 percent); electricity, gas and water (-5.8 percent); and transport, storage and communication (-4.9 percent).  Reduced lendings to these sectors were partially offset by increased credits to the services sector, notably financial institutions, real estate and business services (7.4 percent), and community, social and personal services (6.0 percent).

Overall bank lending activity continues to be weak as banks remain generally cautious,  given the present level of non-performing assets.

Credit continues to be an important channel of monetary policy in the Philippines, and thus the BSP remains committed to strengthening the financial sector by helping banks improve the quality of their assets and providing the appropriate macroeconomic conditions to encourage higher demand for credit. The lack of credit  information has also been cited as an important factor for weak bank lending. The BSP’s support for the credit information bill in Congress is expected to address this aspect of credit weakness.

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