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Bank Lending to the Productive Sectors of the Economy Continues to Climb in May


Outstanding loans of commercial banks, thrift banks and rural banks to the productive sectors of the economy (i.e., net of banks’ RRP placements with the BSP), continued to gain momentum at 6.7 percent from the 6.1 percent posted in the previous month. There has been a clear pick-up in this lending since December 2006, after the BSP implemented the tiering system in November. Given the continued broadening of the financial markets, which has enabled the private sector to diversify funding sources, this trend in bank lending can be considered to have reached a respectable level. 

Meanwhile, bank lending including RRPs expanded by a slower rate of 3.6 percent year-on-year in May compared to the 12.1 percent growth recorded in the previous month.  This was nevertheless higher than the 2.9 percent expansion registered in the same month a year ago.   The deceleration in aggregate bank lending was led by the financial institutions, real estate and business services (FIREBS) sector, which grew by only 1.0 percent year-on-year in May from a 25.5 percent growth in the previous month. This was due mainly to the lower volume of banks’ reverse repurchase transactions (RRPs) with the BSP as there was a shift in placements to the special deposit accounts (SDAs) following the introduction of new monetary measures in early May.  Net of RRPs, however, FIREBs continued to post a strong growth of 13.2 percent, from the 4.8 percent recorded in the previous month.

Growth in lending to the agriculture sector rose to 5.1 percent from 2.1 percent in April.  Meanwhile, the lower stock of loans outstanding in other sectors such as manufacturing, which comprise about a fifth  of the banks’ total loan portfolio, was due to repayments by firms of their financial obligations.  The lower level of outstanding loans to the mining sector was traced to the settlement of corporate loans. Compared to their trends in the previous month, the declines in the mining and manufacturing sectors were smaller and contributed positively to the overall trend in bank lending. During the same period, loans to other sectors such as construction, wholesale and retail trade, transportation, storage and communications, and community, social and personal services, continued to grow albeit at a slower pace.

The BSP will continue to closely monitor credit developments to ensure that liquidity conditions are consistent with the Government’s price stability objectives.

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