Jun. 9--The company said loans extended by banks would grow more than 10 percent this year, higher its earlier projection of 5 percent to 10 percent.

"Loan growth could start to decelerate mainly on base effects starting June this year, but nonetheless looks to exceed our 5 percent to 10 percent forecast for Philippine banks," Ricardo Puig, ATR Kim Eng economist, said.

He said the economy, as measured by the country's gross domestic product (GDP), would start picking up after an unexpected weak first quarter.

"There are too many signs of greater activity across many sectors," Puig said, referring to an improvement in manufacturing loans as well as transportation, storage, and communications as well as real estate sectors as of April.

Consumer loans also accelerated mainly on higher auto loans and credit card receivables, he said.

The Bangko Sentral ng Pilipinas (BSP) on Monday said the banking system would generate more revenues this year to support the recovery in earnings on the back of robust lending.

"The banks will have a better profit picture this year compared to last year," BSP Gov. Amando Tetangco Jr. said.

He said banks' profitability would be driven by higher loans, higher fee-based income due to rising bond issues and the reduction in interest rates, which will improve banks' securities portfolios.

Most of the major banks registered higher profits in the first quarter due to the recovery in trading gains and higher lending.

As of April, outstanding loans of commercial banks grew by 19 percent. This is higher than the 17.8 percent in March as production and consumer loans increased at a faster rate.

Loans for production activities increased by 18.1 percent in April, faster than the 16.1 percent in March accounted mainly by borrowings of the manufacturing, agriculture and real estate sectors.

"The mix of modest loan growth and firmer margins, as lending rates do not appear to be coming down as fast as deposit rates, should aid recovery of bank earnings in 2009," Philippine Equity Partners Inc. (PEPI) said in a separate note.

PEPI said banks might expect loan growth to slow down further to just around 10 percent as large companies are turning to the domestic bond market for financing.

Credit growth reached an all-time high of 21.5 percent last year, as banks were forced to re-evaluate their asset portfolios in line with the growing risk aversion at the onset of the credit crunch.

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