Loans outstanding of commercial banks’ (KB’s) grew slightly by 0.8 percent year-on-year to reach P1.43 trillion as of end-October 2003. The expansion in KB loans in October, however, was slower than the 3.9 percent growth registered in the previous month. Relative to the level in September, outstanding loans declined also by about 2.7 percent.
While the annual pace has been modest, the positive growth in bank lending has been sustained for 14 months. By sector, the growth in bank credits to the agriculture, fisheries and forestry sector, by 11.6 percent; transportation, storage and communication sector, 5.8 percent; community, social and personal services sector, 4.8 percent, manufacturing sector, 1.0 percent; and construction sector, 0.7 percent contributed to the overall increase in bank lending in October. Altogether, these sectors accounted for about half of the total outstanding KB loans in October.
The moderation in the growth of commercial bank loans was accompanied by a decline in manufacturing firms’ capacity utilization. The results of the latest survey on Monthly Integrated Survey of Selected Industries (MISSI) by the National Statistics Office (NSO) showed that average capacity utilization of key manufacturing firms was lower at 77.5 percent in September 2003 compared to 78.6 percent in the previous month. The presence of spare capacity, contributed in part to the subdued demand for bank financing by firms.
Meanwhile, the observed improvement in banks’ asset quality could provide fresh incentives for banks to reinvigorate their lending activities. In particular, the ratio of banks non-performing loans (NPL) to total loans declined to 14.5 percent in September 2003 from 15.0 percent in the previous month and from the year-ago level of 16.4 percent. This development also indicates enhanced capacity of borrowers’ to repay current bank loans, resulting in the decline in KB’s loans outstanding in October from the previous month’s level.
In the near term, the expected seasonal rise in consumer spending during the holiday season as well as the expected recovery in investments—with the increase in world demand—would help promote credit growth going forward. Given this outlook, the BSP’s monetary policy stance will continue to provide a supportive environment, aimed at keeping prices stable while ensuring that the level of liquidity in the system remains adequate in financing the economy’s growth requirements.