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Commercial Bank Lending Improves Slightly in July in 2002


Loans outstanding of commercial banks (KBs) reached P1.384 trillion as of end-July 2002, up by 0.7 percent from P1.374 trillion in the previous month. Relative to the level a year ago, however, bank lending declined by 2.9 percent, slower than the 3.7 percent year-on-year contraction recorded in June 2002. By sector, the improvement in bank lending in July, on a monthly basis, can be traced mainly to increased credit availments by the manufacturing sector, wholesale and retail trade sector, financial institutions, real estate and business services (FIREBS) sector, as well as the community, social and personal services sector. Behind the increase in bank financing in these sectors is the strengthening in the underlying domestic demand as reflected by the higher-than-expected economic growth in the second quarter. The continuing recovery in exports, which grew by 23.0 percent, year-on-year in July, has likewise encouraged additional credit financing by firms.

On an annual basis, bank lending to community, social and personal services sector and FIREBS sector— comprising a combined share to total KB loans of 42.2 percent —has continued to grow by 13.8 percent and 5.4 percent, respectively, in July. The sustained credit expansion in these sectors has helped moderate the contraction in overall bank lending.

Looking forward, the sustained growth of the domestic economy and improved external demand conditions combined with the low interest rate environment could help spur demand for credit. The favorable outturn in growth numbers in the second quarter amidst subdued inflationary conditions, the continued buoyant export performance since April, and the growth in the capacity utilization of manufacturing firms to 75.9 percent in June from 75.4 percent in May are all indications that economic activity in the Philippines is gaining momentum. In support of this environment, the monetary authorities will continue to adhere to an appropriate monetary policy stance supportive of the economy’s growth and price objectives.

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