Commercial bank lending rose by 2.4 percent year-on-year to reach P1.561 trillion as of end-February 2006. This was slightly lower than the 3.0 percent growth in January 2006.
The improvement was driven mainly by loans to the Financial Institutions, Real Estate and Business Services (FIREBS) sector, which recorded a 18.8 percent year-on-year increase during the month; the Community, Social and Personal Services sector, which expanded by 2.8 percent; the Electricity Gas & Water, which rose by 2.3 percent; and the Agriculture, Fisheries and Forestry sector which grew by 8.1 percent. However, increases in lending to these sectors were offset by declines in loans to other key sectors such as Construction (27.4 percent); Mining and Quarrying (1.5 percent); Manufacturing (8.9 percent); Wholesale and Retail Trade (3.3 percent); and the Transportation, Storage and Communication sector (1.3 percent).
Commercial bank lending activity continues to be moderate as a result of sluggish corporate demand and the cautious lending stance of most commercial banks despite declining levels of non-performing loans (NPLs) in the past few months. The recent extension of the effectivity of the Special Purpose Vehicle Act will facilitate the banks’ thrust to dispose of their NPLs, resulting in a further improved lending climate as the industry NPL ratio continues to decline. For its part, the BSP remains focused on its efforts to strengthen overall asset quality in the banking sector as a means of encouraging lending activity to the real sector. On the demand side, loan demand is expected to benefit from favorable domestic interest rates and improved business expectations as a result of steady progress in fiscal consolidation and other key economic reforms.