, April 18, 2005
 (STAR) By Des Ferriols - Commercial bank lending expanded by 5.8 percent as of end-February this year, the highest year-on-year growth rate recorded since March 2004, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.

The BSP reported that as of end-February this year, the loans outstanding of commercial banks (KBs) reached P1.525 trillion due mainly to a strong demand from the manufacturing sector.

The manufacturing sector recorded a 16-percent increase in loans during the review period, contributing for almost four percentage points of the 5.8- growth in total loans.

The BSP reported that increased lending was also seen in other sectors such as the agriculture, fisheries and forestry sector, which grew by 14.1 percent (contributing 0.7 percentage point to total KB lending growth) and the community, social and personal services sector which grew by 9.2 percent (contributing 1.4 percentage points).

The financial institutions, real estate and business services or FIREBS, according to the BSP, grew by eight percent (contributing two percentage points). By contrast, loans to the mining/quarrying and construction sectors declined by 46.4 percent and 18.2 percent, respectively from the levels posted in February 2004.

"The stronger growth in bank lending may be attributed in part to recent improvements in banks’ NPL ratios," the BSP said, referring to the proportion of banks’ bad loans to their total loan portfolio.

According to the BSP, the NPL ratio fell to 12.5 percent in January 2005 from 12.7 percent in the previous month.

"Going forward, growth in KB lending is expected to strengthen further in line with the pace of real sector activity," the BSP said.

Because credit is a critical channel of monetary policy in the Philippines, the BSP said it wanted to compel banks to clean up their balance sheets to improve overall lending activity.

"At the same time, the BSP continues to implement measures to strengthen the management of credit risk in the banking system in line with international best practice," the BSP said in its report.

In 2004, commercial bank lending went up slightly, growing by 2.6 percent to reach P1.526 trillion.

The BSP report said that on a sectoral basis, loans to the manufacturing sector continued to drive the rise in KB lending. These loans accounted for more than a quarter of the total and rose by 14.1 percent year-on-year during the month.

The BSP said bank lending also increased in sectors such as the agriculture, utilities, and wholesale/retail trade. On the other hand, lending to all other sectors saw declines from a year ago, particularly for the Financial Institutions, Real Estate & Business Services (FIREBS) and construction sectors.

The BSP said the modest pace of private sector credit activity was traced to the continued presence of spare capacity in the economy and the present driving role of less credit-intensive sectors such as agriculture in overall real sector activity.

"Subdued credit conditions have also been linked to structural conditions in the banking sector, where new lending continues to be dampened partly by prevailing levels of non-performing loans among banks," the BSP said.

Reported by: Sol Jose Vanzi

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