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Commercial Bank Lending Rises by 3.7 Percent in July 2003

09.15.2003

Total outstanding loans by commercial banks (KBs) rose by 3.7 percent year-on-year to P1.43 trillion as of end-July 2003, representing a steady increase since September 2002. The growth in lending during the month, however, was a slowdown from the 5.1 percent annual increase in June.

The rise in total outstanding loans in July was traced mainly to increased bank credit to the following major productive sectors: agriculture, fisheries and forestry sector, which grew markedly by 69.5 percent year-on-year; community, social and personal services, 8.1 percent; electricity, gas, and water, 4.1 percent; wholesale & retail trade, 2.5 percent; and manufacturing, 1.7 percent. Together, these sectors accounted for about two-thirds of total outstanding loans.

The sustained rise in demand for loans was also underpinned by steady improvements in credit to both the public and the private sectors, which rose by 8.7 percent and 4.1 percent, respectively, in year-on-year terms as of end-July 2003. Strong consumer spending and a steady pick-up in manufacturing activity helped boost private demand for bank credit. During the second quarter, consumption expenditures grew robustly by 5.1 percent from a 3.8 percent year-on-year growth in the second quarter in the previous year. Meanwhile, the manufacturing sector grew by 4.1 percent in real terms during the quarter. On the supply side, lending activity was also supported by the improvement in asset quality in the banking sector, which helped to encourage banks to extend new loans. As of end-June, the non-performing loans (NPL) of KBs as a proportion of total loans declined to 15.2 percent from 18.1 percent a year earlier.

In the months ahead, continued improvement in overall credit activity is expected given a supportive macroeconomic environment to sustain the momentum for growth and prudent monetary policy to closely guard against any possible resurgence of threats to the inflation outlook.

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