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KB Loans Continue to Grow in October 2002


The volume of outstanding loans of commercial banks (KBs) grew steadily by 1.1 percent year-on-year to reach P1.42 trillion as of end-October 2002. The improvement in KB lending can be traced mainly to the continued year-on-year growth in loans to the following sectors: agriculture, fisheries and forestry (22.2 percent), community, social and personal services (16.8 percent) and financial institutions, real estate and business services (8.7 percent). The wholesale and retail trade sector also exhibited a slight 0.6 percent growth after a continuous year-on-year decline since January 2002. The steady expansion in banks’ lending to these sectors—which together accounted for 61.5 percent of total KB loans—suggests that bank lending has started to track a recovery path.

The improvements in bank lending in recent months reflected the strengthening of demand. This was reflected in the steady growth of the economy as the real GDP growth rose to 4.1 percent during the first nine months of the year from 3.0 percent a year ago. Meanwhile, the non-performing loans (NPL) of KBs in relation to total loans continued to improve as the NPL ratio dropped to 17.0 percent (without redefinition) or 16.5 (with redefinition) as of September 2002 from 17.6 percent in the previous month. This development is expected to allow more room for banks to allocate funds for the corporate sector.

In the near term, consumption spending is expected to continue to pick up as economic activity shows further improvement. Business activity has continued to strengthen, as shown in the rise in the average capacity utilization of manufacturing firms to 75.8 percent in September from 74.6 percent in August 2002. Business confidence has likewise picked up, with the business sector expressing optimism over the expected increase in consumer spending and higher volume of business activity during the holidays, as indicated in the BSP’s Business Expectations Survey for the Fourth Quarter.

Going forward, monetary authorities will continue to ensure a policy environment that meets the credit requirements of a growing economy, consistent with the BSP’s price stability objective.

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