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KB Lending Grows by 1.1 Percent in May 2006

07.17.2006

Commercial bank (KB) loans picked up by 1.1 percent year-on-year to P1.607 trillion as of end-May 2006.  This was slightly lower than the 1.3 percent growth posted in the previous month.    On a month-on-month basis, KB loans grew by 3.3 percent in May, an upturn from the 1.3 percent expansion in the previous month.

The following sectors contributed to the overall growth in KB loans: financial institutions, real estate and business services sector  (FIREBS) (13.9 percent); community, social & personal services (6.5 percent); agriculture, fisheries & forestry (4.6 percent); and mining and quarrying (2.1 percent).  Meanwhile, bank lending to other key sectors declined: construction (-26.6 percent); manufacturing (-10.8 percent); transportation, storage, and communication (-4.3 percent); and wholesale and retail trade ( 3.0 percent).

Overall bank lending activity continued to be modest due mainly to weak corporate demand and the cautious lending stance of commercial banks.  In addition, the evolution of business operations has given rise to alternative financing arrangements that reduced, to some extent, the need for firms to seek funding from the banks. Nevertheless, KB lending is expected to pick up gradually over the near term as banks strengthen their balance sheets and the economy continues to consolidate.

For its part, the BSP remains committed to strengthening the financial sector by helping banks reduce their stock of non-performing loans and improve overall asset quality, as well as maintaining supervision standards that are in line with international norms. These efforts should allow credit activity to get back to a normal pace and help ensure that financial intermediation remains supportive of the economy’s growth objectives.

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