Bank lending and domestic liquidity (M3) both expanded at a faster pace in May, signaling sustained economic activity amid continued demand for credit from businesses and households, according to the Bangko Sentral ng Pilipinas (BSP).

The BSP said outstanding loans of universal and commercial banks rose 12.1 percent year on year in May, faster than the 11.4 percent recorded in the previous month, reflecting banks’ expectations of steady credit demand in the second quarter. Loans to residents, which account for the bulk of total lending, grew 12.6 percent.

Business loans increased 11.7 percent, led by electricity, gas, steam and air-conditioning supply (32.9 percent), transportation and storage (21.4 percent), wholesale and retail trade (10.1 percent), real estate (7.3 percent), and manufacturing (6.4 percent). Consumer loans also remained strong, growing 19 percent, although slightly slower than the previous month due to softer expansion in credit card and motor vehicle loans.

The continued expansion in lending helped drive growth in domestic liquidity, which rose 12.8 percent year on year to P20.6 trillion in May, up from 12.2 percent in the previous month. The BSP said money supply growth was mainly supported by sustained borrowing by both the private and public sectors.

Credit to production sectors and households, largely in the form of bank loans, continued to support economic activity, while government borrowing and the withdrawal of deposits from the BSP and banks to finance public spending also contributed to the increase in liquidity. Higher net foreign assets likewise provided additional support.

Domestic claims grew 13.3 percent in May from 12.7 percent in April, while claims on the private sector increased 13.2 percent from 12.6 percent, underscoring the role of bank lending in supporting consumption, investment and business expansion.

Money supply and bank lending maintain a reinforcing relationship. Higher M3 increases deposits and reserves in the banking system, easing funding constraints and allowing banks to expand credit. When banks issue loans, they create deposits, which raise money supply and boost domestic liquidity.

Lending also finances consumption — a major component of Philippine gross domestic product — as well as investment. Stronger economic activity supports income growth and savings, further reinforcing liquidity.