Improvement in loans in vital economic sectors has spawned the steady growth of the volume of outstanding loans of commercial banks (KB) for the third straight month as of end-November 2002.

A report from the Bangko Sentral ng Pilipinas (BSP) said the continued increase in KB lending was noted in the agriculture, fisheries and forestry sector, which grew by 27.1 percent, year-on-year; community, social and personal services, 11.2 percent; and financial institutions, real estate and business services, 9.3 percent.

The BSP said bank credits to the wholesale and retail trade sector and to the utilities (electricity, gas and water) sector also registered modest annual growth rates of 0.2 percent and 0.9 percent, respectively.

Altogether, these sectors accounted for about two-thirds of the total KB outstanding loans during the period in review.

Lending to manufacturing, however, continued to contract by 7.1 percent in November. Spare capacity in manufacturing could explain the weak lending activity to the sector.

The BSP said KB lending rose by 1.4 percent year-on-year to reach P1.43 trillion during the same period.

Bank lending in November last year also went up slightly compared to the 1.1-percent year-on-year growth registered in October 2002.

On a monthly basis, the growth in KB loans was faster at 0.6 percent compared to 0.3 percent in the previous month.

The modest growth in bank lending has been accompanied by some improvement in the asset quality of banks as the ratio of banks’ non-performing loans (NPL) to the total loans outstanding declined to 16.36 percent as of October 2002 from 16.44 percent in the previous month.

The BSP noted that the recent enactment of the Special Purpose Vehicle (SPV) Act of 2002 is expected to hasten the disposition of non-performing assets of the banking system and invigorate bank lending activity.

There are increasing signs of stronger demand for goods and services as evident in the rise of passenger car sales by 2.7 percent in November, an encouraging turnaround from the 17.4-percent year-on-year decline in October.

Similarly, power consumption rose significantly by 6.4 percent in November compared to the 0.9 percent rise in the previous month.

Monetary authorities see a generally manageable inflation outlook despite foreseeable cost-side pressures emanating from the El Niņo weather disturbance and volatility in world oil prices.

In addition, uncertainties regarding the strength of global economic recovery and the risks posed by geopolitical developments remained, making domestic demand conditions, including export growth, quite challenging in the near term.