Manila, June 1, 2003 By Des Ferriols, (Star) - Lending activities in the countryís financial system improved slightly last March from a slowdown prior to the start of the US-led attack on Iraq, the Bangko Sentral ng Pilipinas said.

In a report, the BSP said the net domestic credits of the banking system Ė or the aggregate amount of loans farmed out Ė reached P2.221 trillion at end-March, up slightly from P2.171 trillion in end-February when credit slowed down drastically as the financial system braced itself against the possible impact of the war in Iraq.

The increase in lending consequently increased the amount of liquidity in the system which the BSP said rose from P1.563 trillion in March 2002 and P1.62 trillion in February this year to P1.634 trillion last March.

The lending level last March was also P197.604 billion higher than the P2.024 trillion net domestic credit recorded a year earlier, an improvement that the BSP attributed more to the marketís appetite for government securities and less to the slight increase in manufacturing activity.

The BSP reported that government borrowing amounted to P731 billion at the end of March, up dramatically from P698.216 billion the previous month and from P608.261 billion in March 2002.

The larger private sector borrowing, meanwhile, increased by P12.085 billion from P1.477 trillion in February to P1.489 trillion in March. Last year, bank lending to the private sector was recorded at P1.415 trillion.

But the more significant growth came from the National Government which struggled to frontload its borrowing requirements to tame the pressure created by its projected P202-billion deficit for the year.

The National Treasury led the borrowing spree, selling treasury bills and bonds as it launched its second quarter borrowing program.

"The government is still the leading borrower from the financial system," said a BSP official. "The only reason it isnít crowding out private sector borrowers is because there isnít much appetite there anyway."

Money supply or M3 - which measures the amount of liquidity in the financial system - grew by an annual rate of only 4.54 percent in March, way below the 6.6 percent growth in February.

A rapid growth in the domestic money supply is usually an indication of an active economy and the potential inflationary impact that rapid growth has on the economy as a whole.

A slow growth in money supply, on the other hand, indicates a slow turnover of funds due to weak spending and lack of economic activity.

The BSP further reported that a total of P191.312 billion worth of currency are in circulation in March, up from P188.773 billion in February and P178.839 billion a year ago.

Reported by: Sol Jose Vanzi

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