Outstanding loans of commercial banks stood at P1.398 trillion as of end-September 2001, reflecting a 0.6 percent drop from the level a year ago. This developed as banks continued to adopt a prudent lending stance amidst the challenging economic environment, and as demand by corporations for loans remained weak due largely to excess capacity. In particular, the average capacity utilization of manufacturing firms declined to 78.6 percent in august from 79.3 in the previous month. This has allowed continued production of firms without need for additional bank financing.
The slight decrease in bank lending was attributed to reduced loans to the following sectors: manufacturing; financial institutions, real estate and business services (FIREBS); and transportation, storage and communication sectors. These sectors together accounted for about 60 percent of total loans outstanding.
By contrast, outstanding loans to the wholesale and retail trade; electricity, gas and water and community, social and personal services sectors continued to rise year-on-year, a trend that has been observed since January 2001. Bank lending to the agriculture, fisheries & forestry sector also rose in September.
Going forward, the recent 50-basis point cut in the BSP’s key policy rates—which brought the cumulative reduction to 675 basis points in the last eleven months—is expected to help stimulate private sector borrowing to finance productive activities. The expected holiday-related increase in private spending may also contribute to increased loan activity in the coming months.