Loans outstanding of commercial banks (KBs) grew by 1.3 percent year-on-year to about P1.5 trillion as of end-October 2005. This was higher than the 0.5 percent year-on-year growth in the previous month (Table 1). On a month-on-month basis, KB loans showed a decline of 0.4 percent, an improvement from the 3.4 percent month-on-month decline registered in September (Table 2).
The following sectors contributed to the overall growth in KB loans: the financial institutions, real estate and business services sector (FIREBS), which contributed 2.43 percentage points to loan growth; agriculture, fisheries & forestry (0.77 percentage point); transportation, storage & communication (0.18 percentage point); community, social & personal services (0.54 percentage point). This offset the declines registered in the following sectors: wholesale & retail trade (1.28 percentage points); manufacturing (0.69 percentage point); electricity, gas & water (0.31 percentage point); construction (0.24 percentage point); and mining and quarrying (0.14 percentage point).
The continued pattern of sluggish credit activity has been linked to the banks’ cautious lending stance alongside weak corporate credit demand. This underscores the need to further strengthen the banking system and encourage banks to engage in more lending activity. Going forward, therefore, the BSP remains firmly 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 policy priority as it will allow credit activity to resume a normal pace and enable the banking sector to better perform its intermediation function.