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Growth in Bank Lending Accelerates in December 2002

02.14.2003

Bank lending accelerated in December 2002, with the total volume of outstanding commercial banks’ (KBs) loans rising by 2.4 percent year-on-year to reach P1.43 trillion from only 1.4 percent growth in the previous month. This marked the fourth straight month of growth in total loans and the first for the manufacturing sector, after 17 months of consecutive year-on-year contractions. These developments strengthen expectations of continued recovery in the demand for credit.

The sustained growth in bank lending can also be traced to steady improvements in loans to the following sectors, namely: agriculture, fisheries and forestry sector, which grew by 27.5 percent, year-on-year; community, social and personal services, 8.8 percent; and financial institutions, real estate and business services, 6.0 percent. Bank credits to the electricity, gas and water sector also registered modest annual growth of 1.4 percent in December 2002. Moreover, the notable upturn in bank credits to the manufacturing sector, which rose by 1.7 percent year-on-year also contributed to the recovery in bank lending.

The encouraging uptrend in bank lending has been accompanied by the improvement in the asset quality of banks as the ratio of banks’ non-performing loans (NPL) to the total loans outstanding eased further to 16.3 percent as of November 2002 compared to 16.4 percent in the previous month. Moreover, the expected implementation of the Special Purpose Vehicle (SPV) Act of 2002 could further invigorate bank lending activity with the eventual disposal of the non-performing assets of the banking system. The robust growth in domestic demand in the fourth quarter on the strength of consumption spending could propel further the growth in bank lending to support economic activity going forward.

In the light of these developments, monetary policy will continue to provide a supportive environment, one that will allow sufficient credit and liquidity to fund the requirements for sustained economic growth while keeping a close watch against any evidence of inflationary pressures that could pose a risk to achieving a low and stable inflation.

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