The Market Monitor Minding the Nation's Business
By Riza Lozada
Outstanding loans of commercial banks, net of reverse repurchase placements (RRP), grew by 17.6 percent in June after posting a 17.7-percent increase in May to reflect rising economic activities.
Bank lending inclusive of RRPs grew at 16.6 percent in June compared with May’s figure, recent Bangko Sentral ng Pilipinas (BSP) data showed.
From the previous month, commercial bank lending in June increased by 1.2 percent. Loans for production activities comprising 80 percent of banks’ aggregate loans increased by 17.7 percent in June.
The expansion was driven by lending to real estate (20.7 percent); electricity, gas, steam and airconditioning supply (30 percent); wholesale and retail trade, repair of motor vehicles and motorcycles (15.3 percent); finance and insurance (19.4 percent); manufacturing (9.3 percent); and information and communications (35.5 percent).
Bank lending to other sectors likewise expanded during the month, except for professional, scientific and technical activities (-7.8 percent), and public administration and defense, compulsory social security (-5.9 percent).
Loans for household consumption expanded by 18.8 percent in June, from 17.4 percent in May, due to the expansion in motor vehicle loans and salary-based general purpose loans and sustained growth in credit card loans, which offset the decline in other types of household loans.
The BSP announced a shift in its monetary operations to an interest rate corridor (IRC) system starting in June. The IRC is a system for guiding short-term market rates toward the BSP policy interest rate, which is the overnight RRP rate.
BSP Governor Amando M. Tetangco Jr. said the primary aim of the adoption of the IRC is to improve the transmission of monetary policy.
By helping ensure that money-market rates move within a reasonably close range around the BSP’s policy rate, the IRC helps to enhance the link between the stance of BSP monetary policy and financial markets.
The IRC system consists of the following instruments: standing liquidity facilities, namely, the overnight lending facility (OLF) and the overnight deposit facility (ODF); the overnight RRP facility; and a term-deposit auction facility (TDF).
The interest rates for the standing liquidity facilities form the upper and lower bound of the corridor, while the overnight RRP rate is set at the middle of the corridor.
The repurchase (RP) and special deposit account (SDA) windows will be replaced by standing overnight lending and overnight deposit facilities, respectively. Meanwhile, the reverse repurchase (RRP) facility will be modified to a purely overnight RRP.
In addition, the term deposit facility (TDF) will serve as the main tool for absorbing liquidity. To implement the IRC system, the BSP also signed in May an agreement with the Bankers Association of the Philippines, Money Market Association of the Philippines, Investment House Association of the Philippines, Chamber of Thrift Banks, Trust Officers Association of the Philippines, and ACI Philippines for the Monetary Operations System.