Loans outstanding of commercial banks (KBs) grew by 2.1 percent year-on-year to about P1.6 trillion as of end-November 2005. This was higher than the 1.3 percent year-on-year growth in the previous month. On a month-on-month basis, KB loans showed an increase of 5.0 percent, a marked improvement from the 0.4 percent month-on-month decline registered in October.
The following sectors contributed to the overall growth in KB loans: the financial institutions, real estate and business services sector (FIREBS), which contributed 2.12 percentage points to loan growth; community, social & personal services (0.88 percentage point); agriculture, fisheries & forestry (0.57 percentage point); and electricity, gas and water (0.07 percentage point). These offset the declines registered in the following sectors: wholesale & retail trade (0.56 percentage points); transportation, storage & communication (0.27 percentage point); construction (0.55 percentage point); mining and quarrying (0.14 percentage point); and manufacturing (0.06 percentage point).
Credit activity is expected to pick up in the months ahead as the economic conditions strengthen and business sentiment improves. The strong performance of the stock exchange and currency markets on the back of the passage of the EVAT is a reflection of improved investor confidence and could influence the pick up in bank lending. Credit activity will also be supported by the improved balance sheets of commercial banks should they be able to further reduce their stock of non-performing loans.
Going forward, the BSP will continue to support the restructuring and strengthening of the financial sector by helping banks reduce their stock of non-performing loans. The extension of the Special Purpose Vehicle Act is now pending in Congress and its proposed extension will facilitate the continued improvement in bank’s balance sheets. 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.