Loans outstanding of commercial banks (KBs) grew by 5.8 percent year-on-year to P1.525 trillion as of end-February 2005 from 4.0 percent in January. This is the highest rate of growth observed since March 2004. On a month-on-month basis, total KB loans rose by 0.9 percent in February, a reversal from the 1.1 percent and 0.9 percent drop observed in December 2004 and January 2005, respectively.
The increased KB lending was directed mainly towards the manufacturing sector, where loans grew by 16 percent year-on-year in February and contributed for almost 4 percentage points of the 5.8 growth in KB loans. Increased lending was also seen in other sectors such as the Agriculture, fisheries and forestry sector, which grew by 14.1 percent (contributing 0.7 percentage point to total KB lending growth), the Community, social and personal services sector which grew by 9.2 percent (contributing 1.4 percentage points) and financial institutions, real estate and business services or FIREBS, which grew by 8 percent (contributing 2 percentage points). By contrast, loans to the mining/quarrying and construction sectors declined by 46.4 percent and 18.2 percent contraction, respectively, from the levels posted in February 2004.
The stronger growth in bank lending may be attributed in part to recent improvements in banks’ NPL ratios, which fell to 12.5 percent in January 2005 from 12.7 percent in the previous month. Going forward, growth in KB lending is expected to strengthen further in line with the pace of real sector activity.
Credit continues to be an important channel of monetary policy in the Philippines, and for this reason, the BSP remains steadfast in its efforts to help clean up banks’ balance sheets to improve overall lending activity. At the same time, the BSP continues to implement measures to strengthen the management of credit risk in the banking system in line with international best practice. Over the near term, the BSP will continue to shore up its efforts to ensure the appropriate conditions for continued credit growth in line with real sector activity, while fulfilling its primary mandate of price stability.