Outstanding loans of commercial banks increased by 11.1 percent year-on-year to P1.665 trillion in October 2006, an acceleration from the 6.1 percent increase recorded a month earlier. This was the highest growth rate recorded since May 1998. On a month-on-month basis, commercial bank loans rose by 4.3 percent following a 0.01 percent contraction in the previous month.
The growth in commercial bank lending was driven by loans to the financial institutions, real estate and business services (FIREBS) sector; the community, social and personal services sector; and the wholesale and retail trade sector. The significant increase in loans classified under financial intermediation was linked to banks’ participation in the open market operations of the BSP. The data also showed momentum in lending activity to the community, social and personal services sector, which would include a wide variety of businesses such as hospitals, medical services providers, schools, hotels and restaurants, and sanitation firms. Meanwhile, lending to the wholesale and retail trade industry continued to benefit from robust growth in consumer spending.
The increase in lending to these sectors, however, was partly offset by the declines in lending to construction (7.5 percent); agriculture (4.5 percent), manufacturing (4.4 percent), and transportation, storage, and communication (3.4 percent).
Going forward, the anticipated growth of consumption and business activities towards the end of the year due to the holiday season is expected to underpin stronger credit demand. The BSP will continue to closely monitor developments in the credit front, aware that these have an important bearing on the outlook for inflation and economic growth. Close monitoring of credit developments, together with other economic variables, will help policymakers reach an informed decision on the appropriate stance of monetary policy.