The banking sector is still in a rut, but this is largely due to their reluctance to resume lending to the corporate sector, banking industry leaders said.
According to Paul J. Lawrence, chief executive officer (Philippines) of the Hongkong and Shanghai Banking Corp. (HSBC), companies were still operating below capacity, an indication that there was little appetite for fresh borrowing anyway.
Consumer spending, on the other hand, was projected to grow at double-digit rates and this would help fuel the growth expected this year.
Lawrence called the government’s economic growth targets for 2002 reasonable and achievable, although it would take more time before the economy starts creating jobs again.
The National Economic and Development Authority (NEDA) had projected that the economy would grow by 4.5 to five percent this year, compared to the 3.7 percent growth posted in 2001.
"The leading indicators look good and they may actually exceed their forecast," Lawrence said. "The macro economy looks good, we just need to see more growth in inventory."
The reluctance of banks to lend to corporate borrowers, Lawrence said, stems from the 1997 Asian financial crisis that led to the fallout lasting more than five years. "Lending has been very dangerous in the last few years and non-performing loans make banks feel uncomfortable."
Lawrence said HSBC is benefiting from the diversification of its portfolio which used to be dominated by corporate accounts. Although it is still primarily a commercial bank, he said the institution has expanded its consumer banking substantially in order to diversify its revenue stream.
Earlier, the government said it expected domestic production to grow between 3.8 percent to 4.3 percent during the first quarter of the year as the global economy improves on the back of the recovery of the US economy.
Socioeconomic Planning Secretary Dante Canlas revealed that there was cause for optimism that the economy would be growing better than expected although economists remain cautious over the sustainability of the US economic recovery.
Despite the caveat, however, Canlas said there were basic domestic forces at work that were dependable indications of improving economic conditions, reflected by the marked improvement across all three major economic sectors – agriculture, industry and services.
Canlas said there was marked growth in the agriculture sector which was expected to expand by over four percent during the first three months.
He said palay production was projected to provide much of the momentum in the agriculture sector and the continuation of favorable weather conditions propelled the increase in output.
The industry sector, on the other hand, was also expected to improve on its first quarter performance of 1.6 percent in 2001. Canlas said the sector would draw strength from the improvement in manufacturing and construction.
Canlas explained that declining interest rates have finally managed to have an impact on construction while manufacturing was projected to recover in tandem with the better-than-expected performance of the country’s export winners, specifically electronics and semiconductors.
This year, exports are expected to grow by one to 1.5 percent, better than the zero growth originally forecast. Last year, exports declined by 15 percent.