Loans outstanding of commercial banks (KBs) grew by 0.5 percent year-on-year to about P1.5 trillion as of end-September 2005. This was a slowdown from the 3.3 percent year-on-year increase in the previous month. Compared to last month’s level, however, KB loans fell by 3.4 percent, a reversal from the 0.8 percent month-on-month acceleration registered in August.
Reductions in loans to the following sectors pulled down the growth in overall lending: wholesale & retail trade (1.23 percentage points); manufacturing (0.93 percentage point); construction (0.18 percentage point); transportation, storage & communication (0.17 percentage point); electricity, gas & water (0.14 percentage point) and mining and quarrying (0.10 percentage point). These were partly offset by the modest increase in loans to the real estate sub-sector, under the financial institutions, real estate and business services sector (FIREBS), which contributed 1.7 percentage points to loan growth. Lending to community, social & personal services sector contributed 1.4 percentage points while agriculture, fisheries & forestry contributed 0.67 percentage point.
The decelerating trend in the growth of loans outstanding over the past few months has also been partly due to banks’ unloading of their non-performing loans (NPLs) via the SPV Law beginning October 2004, which reduced the stock of outstanding loans. The incentives provided under the law expired in July, but a pending bill in Congress proposes an extension of the effectivity period for the incentives to encourage more asset sales.
The BSP remains committed to the restructuring and strengthening of the financial sector by helping banks reduce their stock of non-performing loans. The cleaning up of banks’ balance sheets remains a major policy priority as it will allow credit activity to resume a normal pace and enable the banking sector to better perform its intermediation function.