Indicative of the renewed strength in demand for money in November, year-on-year growth in domestic liquidity (M3) grew faster at 15.2 percent from 12.1 percent in October, the highest so far since July 1998. M3’s monthly increase also exhibited significant improvement, expanding by 4.96 percent at the end of November compared to a decline of 0.24 percent in the previous month.
The increase in the end-November M3 level could be traced partly to the rise in monthly growth of average reserve money in November as banks unwound their lendings to BSP through reverse repurchase facility and special deposit accounts in preparation for the possible increase in the public’s demand for cash due to the changeover to Y2K and the holiday season.
The higher demand for money was accompanied by the rise in the total loan portfolio of Philippine commercial banks, reaching P1.373 trillion in November, or 1.88 percent higher than the level recorded a year ago. This represents a turnaround from a 1.85-percent decline in loans outstanding of commercial banks in October. On a month-on-month basis, total bank lending was also higher, rising by 2.82 percent compared to the 2.17-percent drop posted in October. This renewed growth in the overall lending activity suggests improved prospects for higher capacity utilization.
Banks’ increased lending activity during the month was seen specifically in the country’s productive sectors, such as mining and quarrying, manufacturing, construction along with agriculture, fisheries and forestry sectors that altogether accounted for nearly two-fifths of total bank lending in November.
However, bank lending declined moderately albeit at a decelerated pace, in November on a month-on-month basis for two sectors. Lending to the utilities sector (electricity, gas and water) fell slightly by 0.9 percent in November (as against 2.6 percent in October), while loans to the financial institutions, real estate and business services (FIREBS) sector dropped by only 0.1 percent in November from 4.9-percent decline in the previous month.
The rise in banks’ loan portfolio resulted in the acceleration in deposit money banks’ net domestic credits at end-November, increasing by 2.13 percent year-on-year from a 0.96-percent rise in October. There was strong growth in net credits to the private sector, chiefly in the form of loans, rising significantly to 1.15 percent year-on-year in November from a decline of 0.56 percent in October. The growth in net credits to the public sector was also sustained but a slower pace of 6.25 percent versus 7.57 percent in October.
The BSP will continue to monitor closely these indicators to guide monetary authorities in charting an appropriate policy stance that is supportive of sustainable growth and stable prices.