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Commercial Bank Lending Picks Up in September 2002

11.18.2002

The volume of outstanding loans of commercial banks (KBs) picked up by 1.2 percent year-on-year to reach P1.41 trillion as of end-September 2002, an improvement from the P1.38 trillion level registered a month earlier.  The year-on-year expansion of 1.2 percent in KB loans as of end-September represents a turnaround from the year-on-year contraction registered since April 2002.  On a month-on-month basis, KB lending also improved as it registered a 2.8 percent growth as of end-September 2002, a reversal of  the general downtrend experienced since May 2002.

The improvement in KB lending was traced to increased credit to firms in two major sectors: the community, social and personal services and the financial institutions, real estate and business services—which together accounted for 42.7 percent of total KB loans.  The rise in bank lending to the agriculture, fisheries & forestry (26.5 percent) also contributed to the growth in bank lending.  Although these numbers are far from constituting a trend, they could nevertheless signal the beginning of a recovery in bank lending.

The uptick in bank lending during the period reflected the aptness of the current interest rate environment in helping provide for the economy’s credit requirements as well as the improving quality of banks’ assets.  In particular, the range of bank lending rates fell from 18.0-19.9 percent in December 2000 to 8.2-10.0 percent in October 2002, partly as a result of the monetary easing measures undertaken by the BSP.  Likewise, the non-performing loans of KBs declined for the third consecutive month to 17.6 percent as of August 2002 compared to 18.3 percent at the beginning of the year. 

Expectations of improving credit demand in the near term are also bolstered by some indications of strengthening domestic  demand.  For example, approved building construction permits registered with the National Statistics Office (NSO) during the second quarter increased by 25.1 percent compared to the same period in the previous year, while power sales by Meralco grew by 3.7 percent year-on-year in September 2002 following a 1.5 percent decline in the previous month.

In support of these developments, the BSP will continue to ensure that the stance of monetary policy remains fully consistent with its price stability objective in support of balanced and sustainable economic growth.

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