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Bank Lending Rises by 3.2 Percent in March 2003

05.19.2003

Bank lending rose in March 2003, with the volume of outstanding commercial bank (KB) loans growing by 3.2 percent year-on-year to reach P1.46 trillion as of end-March 2003. Bank lending has shown continued growth since September 2002, following five months of contraction. The rise in KB loans as of end-March 2003 was an improvement from the 0.1 percent year-on-year growth recorded a year ago, but was lower than the 4.4 percent year-on-year growth registered in January and February 2003.

The increase in bank lending during the month was traced mainly to the expansion in KB loans to the following sectors: agriculture, fisheries and forestry sector, which grew by 40.3 percent, year-on-year; wholesale & retail trade, 13.3 percent; electricity, gas and water, 12.0 percent; manufacturing, 7.3 percent; and community, social and personal services, 6.6 percent. These sectors together accounted for 64.6 percent of the total KB outstanding loans as of end-March 2003.

The continued growth in bank lending, particularly to the manufacturing sector, is supported by the improvement in domestic demand such as the 12.1 percent year-on-year rise in the volume of production index (VOPI) and the 2.7 percent year-on-year expansion in the value of production index (VAPI) in February 2003. The average capacity utilization in manufacturing also improved to 76.5 percent year-on-year in February from 76.1 percent in the previous month and 75.6 percent in the same month a year ago. The improvement in bank lending is also supported by the gains in banks’ asset quality, as indicated by the decline in the ratio of KB’s non-performing loans to total loans, at 15.5 percent in March 2003 compared to 18.0 percent recorded in March 2002.

Credit activity is expected to continue to improve over the near term, given a supportive macro environment, evidence of strengthening economic activity, and improving bank asset quality. Going forward, monetary authorities will continue to focus on ensuring the appropriate liquidity conditions to support credit demand and overall economic activity.

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