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Growth of Commercial Bank Lending Improves Slightly in August 2003

10.15.2003

he total loans outstanding of commercial banks (KBs) rose by 3.8 percent year-on-year to P1.43 trillion as of end-August 2003, representing 12 straight months of solid growth since September 2002. The increase in bank lending in August was a slight improvement relative to the 3.7 percent annual increase in the previous month.

By economic activity, the rise in total outstanding KB loans in August can be traced mainly to the rise in bank credit availments by the following sectors: agriculture, fisheries and forestry sector, which grew significantly by 68.6 percent year-on-year; community, social and personal services, 14.4 percent; electricity, gas, and water, 7.7 percent; and wholesale & retail trade, 1.4 percent. These sectors accounted for a combined share of about 40 percent of total outstanding KB loans in August.

The strengthening demand for bank loans has been supported by the steady rise in credits to both the public and private sectors which rose year-on-year by 15.3 percent and 3.2 percent, respectively, during the period. The continuing robustness in consumption spending as well as the gradual pick-up in manufacturing activities have contributed to higher demand for bank financing by firms.

The growth in bank lending was also encouraged by the continued soundness of the banking system, marked by steady improvement in asset quality. As of end-August, the non-performing loans (NPL) of KBs as a proportion of total loans eased to 15.0 percent from 15.4 percent in the previous month.

Going forward, the overall credit activity is expected to strengthen further over the next few months with the seasonal increase in economic and business activities as the holiday season draws nearer combined with the improving prospects on external market conditions. Given this outlook, monetary authorities will continue to provide a supportive macroeconomic environment to ensure that the country’s economic growth gains a firmer footing. At the same time, the BSP will continue to watch cautiously against any possible threat to maintaining price stability.

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