Bank lending continues to accelerate

Bank lending continues to accelerate

Bank lending growth grew at a brisker pace in June to 18.8 percent from the previous month’s expansion of 17.4 percent, latest data from the Bangko Sentral ng Pilipinas (BSP) showed.

BSP said that the increase is the highest growth rate recorded since April 2009.

Likewise, outstanding loans of commercial banks inclusive of RRPs accelerated at a faster rate of 20.5 percent from an expansion of 19.3 percent in May, to reach P2.8 trillion.

"Commercial banks’ loans have been growing steadily at double-digit growth rates since January 2011," the central bank said.

BSP added that the sustained expansion in bank lending during the month supports the view that financial conditions are stable and that the domestic economy is growing within a sustainable economic path.

Going forward, the BSP will continue to ensure that liquidity and credit conditions keep at pace with overall economic activity while remaining consistent with the BSP’s price stability objective.

Loans for production activities-which comprised more than four-fifths of commercial banks’ total loan portfolio-expanded by 20.6 percent in June from 19.0 percent (revised) a month earlier. Meanwhile, the growth in consumer loans decelerated to 14.1 percent from 14.9 percent due to the slowdown recorded in the growth of credit card receivables and auto loans by 6.2 percent and 25.8 percent, compared to 9.1 percent and 29.0 percent in May, respectively.

The expansion in production loans was driven largely by increased lending to electricity, gas and water (which grew by 62.3 percent); real estate, renting and business services (20.4 percent); manufacturing (17.1 percent); financial intermediation (31.9 percent); wholesale and retail trade (20.3 percent); and transportation, storage and communication (23.7 percent).

The growth in lending to construction activities accelerated to 13.3 percent from 5.4 percent in the previous month.

Meanwhile, contractions were posted in lending to two production sectors, namely, health and social work (-5.0 percent); and education (-10.8 percent).

On a month-on-month seasonally-adjusted basis, however, commercial banks’ lending in June declined by 2.4 percent for loans net of RRPs and by 0.5 percent for loans inclusive of RRPs.

Meanwhile, domestic liquidity or M3 grew at a faster pace of 11.4 percent in June 2011 from 8.0 percent in May 2011 to reach P4.4 trillion.

On a monthly basis, seasonally-adjusted M3 increased by 2.7 percent from a growth of 1.0 percent (revised) in the previous month.

Fueling the expansion in domestic liquidity is the steady growth in net foreign assets (NFA) at 14.8 percent in June, particularly that of the BSP.

The BSP’s NFA position grew by 33.1 percent due largely to sustained foreign exchange inflows from overseas Filipino remittances as well as portfolio and direct investments.

Meanwhile, the NFA of banks continued to decline by 83.7 percent as their foreign liabilities increased while their foreign assets declined. Banks’ foreign liabilities rose with the increase in bills payables and higher placements made by the head offices/other branches of foreign banks with their Philippine branches.

Meanwhile, the decrease in banks’ foreign assets was due in part to the contraction in loan receivables from foreign banks.

Net domestic assets (NDA), meanwhile, decreased marginally in June from a 6.2 percent contraction in the previous month given the slower expansion in the net other items account (which includes, among other things, revaluation and capital and reserve accounts as well as SDA placements of trust entities).

By contrast, the growth in net domestic credits accelerated to 8.1 percent with credits extended to the private sector expanding by 13.8 percent from 13.4 percent in the previous month.

This trend is in line with the continued strong growth of bank lending to the productive sectors of the economy.

Meanwhile, credits extended by banks to the public sector contracted further due mainly to the decline in credits extended to the National Government (NG) given its improved cash position as reflected in the continued increase in NG deposits with the BSP and other banks during the month.

The BSP continues to closely monitor monetary conditions, particularly as foreign exchange inflows are expected to remain strong in the near term, to ensure that the amount of liquidity in the financial system remains in line with the BSP’s price and financial stability objectives.

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