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Commercial Bank Loans Increases Slightly in April

06.25.2002

The outstanding loans of commercial banks (KBs) grew by P5.83 billion or 0.4 percent to reach P1.42 trillion as of end-April 2002 from the previous month’s level. This indicates a steady-though- slight month-on-month growth in bank lending and borrowing activities of firms. On an annual basis, however, the growth in KB loans in April 2002 declined by 2.2 percent after posting a 0.1 percent growth in the preceding month. On the supply side, the steady monthly increase in bank lending has been, to certain extent, limited by the need to preserve asset quality of banks given the relatively large non-performing loans (NPLs) of banks at 18.2 percent of total loans outstanding in April 2002. On the demand side, the presence of spare capacity has in part curbed the need of firms for fresh bank financing. The average capacity utilization stood at 75.6 percent in March 2002, a slight improvement from the 75.4 percent utilization recorded in the previous month.

By sector, bank lending in the manufacturing; utilities; and wholesale and retail trade sectors—which accounted for a combined share of 44.8 percent to the total loans outstanding of commercial banks—started to recover in April 2002 from the negative or relatively flat month-on-month growth rates recorded in the previous month. The increase in bank credits in April 2002 to these sectors cushioned in part, the declines for those in transportation, storage and communication; mining and quarrying; agriculture, fisheries and forestry; community, social and personal services; construction; and the financial institutions, real estate & business services (FIREBS) sectors.

The current low interest rate environment—due in part to the monetary easing measures of the BSP—is expected to support the momentum for economic growth. Recent indicators already show signs of renewed strength in economic activity. In particular, both the volume of production index and the value of production index registered month-on-month increases of 5.9 and 7.0 percent, respectively, in March 2002. The Chamber of Automotive Manufacturers of the Philippines (CAMPI) reported an increase in the volume of car sales by 2.2 percent to 7,224 units for the period January-April 2002, a welcome turnaround from the 28.8 percent drop in sales during the same period a year ago. In addition, energy sales of the Meralco rose by 2.9 percent in April 2002, a reversal from the year-on-year declines recorded during the first three months of the year. At the same time, latest data on credit card receivables of commercial banks and thrift banks showed increases of 9.3 percent on a quarterly basis and 41.6 percent on an annual basis. This indicates an underlying strength in consumption spending. These combined factors point to briskier economic activity ahead, which should help propel a steady growth in bank lending.

Going forward, the BSP will continue to monitor carefully the unfolding economic and financial developments, seeing to it that monetary policy remains supportive of the economy’s non-inflationary growth path.

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