Loans outstanding of commercial banks (KBs) declined slightly by 1.5 percent year-on-year to reach P1.4 trillion as of end-February 2004, a reversal of 16 months of growth since September 2002. KB loans grew annually by 0.8 percent in the previous month and by 4.4 percent in February 2003. On a monthly basis, KB loans declined also by 0.8 percent in February 2004. The decline in bank lending in February may be linked to the increase in banks’ foreclosures (Real and Other Properties Owned and Acquired), spare capacity in manufacturing, and the current political uncertainty in the run up to the May presidential elections.
By sector, the mining and quarrying sector and the construction sector registered significant annual increases in KB lending of 58.8 percent and 25.0 percent, respectively. Continued expansion in bank lending was also observed in the following sectors, namely: community, social and personal services sector, by 9.1 percent; transportation, storage and communication sector, 6.8 percent; agriculture, fisheries and forestry sector, 5.1 percent; and wholesale and retail trade, 1.1 percent. Taken together, these sectors accounted for 44.8 percent of total loans outstanding as of end-February 2004. However, the expansion in bank lending to these sectors was offset by reduced bank lending to the remaining sectors. In particular, bank lending to the manufacturing sector and financial institutions, real estate and business services—which comprised about 50.2 percent of total KB loan outstanding—declined by 8.7 percent and 8.2 percent, respectively, in February 2004. The decline in KB loans to the manufacturing sector may be tied to the continued presence of spare capacity among firms in the sector, giving room for firms to expand production without necessarily requiring additional capital financed by borrowings from KBs.
Despite the contraction in February, bank lending is expected to pick up as domestic demand strengthens in the coming months, as observed in most indicators of economic activity. For instance, the value of production index in the manufacturing sector increased by 4.4 percent as of January 2004 from the previous year’s level. Power consumption, as indicated by Meralco’s energy sales, grew by 6.2 percent year-on-year in February 2004 from a decline of 7.6 percent in January 2004. The volume of passenger car sales also increased by 68.0 percent in February 2004, the sixth consecutive month that sales increased significantly.
Moving forward, monetary authorities will continue to monitor closely the developments in bank lending activities and ensure that these are appropriately considered, together with other factors bearing on the inflation outlook, in the regular assessment of the stance of monetary policy. Given a generally manageable inflation outlook, monetary policy will continue to provide an enabling environment, aimed at promoting credit growth to support economic activity.