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Bank Lending Rises Steadily in November 2002

01.17.2003

The volume of outstanding loans of commercial banks (KBs) grew steadily for the third straight month, rising by 1.4 percent year-on-year to reach P1.43 trillion as of end-November 2002. Bank lending in November accelerated slightly compared to the 1.1 percent year-on-year growth registered in October 2002. Similarly, on a monthly basis, the growth in KB loans was at a faster clip of 0.6 percent compared to 0.3 percent in the previous month.

The continued increase in KB lending can be traced mainly to the improvements in loans to the following sectors: agriculture, fisheries and forestry sector, which grew by 27.1 percent, year-on-year; community, social and personal services, 11.2 percent; and financial institutions, real estate and business services, 9.3 percent. Bank credits to the to the wholesale and retail trade sector as well as to utilities (electricity, gas and water) sector also registered modest annual growth rates of 0.2 percent and 0.9 percent, respectively, in November. Altogether, these sectors accounted for about two-thirds of the total KB outstanding loans as of end-November 2002. Lending to manufacturing, however, continued to contract by 7.1 percent in November. Spare capacity in manufacturing could explain the weak lending activity to the sector.

The continued modest growth in bank lending has been accompanied by some improvement in the asset quality of banks as the ratio of banks’ non-performing loans (NPL) to the total loans outstanding declined to 16.36 percent as of October 2002 from 16.44 percent in the previous month. [1] The recent enactment of the Special Purpose Vehicle (SPV) Act of 2002 is expected to hasten the disposition of the non-performing assets of the banking system and invigorate bank lending activity. Already, there are increasing signs of stronger demand for goods and services as evident in the rise of passenger car sales by 2.7 percent in November, an encouraging turnaround from the 17.4 percent year-on-year decline in October. Similarly, power consumption increased significantly by 6.4 percent in November compared to only 0.9 percent rise in the previous month.

Looking forward, monetary authorities see a generally manageable inflation outlook despite foreseeable cost-side pressures emanating from the El Niño weather disturbance and volatility in world oil prices. In addition, uncertainties regarding the strength of the global economic recovery and the risks posed by geopolitical developments remain, which will make domestic demand conditions, including export growth, quite challenging in the near term. Against this backdrop, monetary authorities will continue to ensure that monetary conditions supportive of non-inflationary growth are in place.

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[1]  Based on the new NPL definition under BSP Circular No. 351, which excludes the 100 percent loan provisioning for the “Loss” classification; in terms of the old definition of NPL under BSP Circular No. 202, the NPL ratio to total loans dropped to 16.88 percent in October 2002 from 17.02 percent in September 2002.

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