Banks’ non-performing loans ratio down to 3.6% in March

MANILA, Philippines – The bad loans of commercial and universal banks continued to drop at the end of the first quarter, falling to 3.56 percent in March from 4.52 percent in the same period last year and 3.73 percent a month earlier.

The Bangko Sentral ng Pilipinas (BSP) said the March decline in the non-performing loans of universal and commercial banks marked the sixth consecutive month that bad loans were kept below four percent of the total loan portfolio.

The BSP said the improvement in the bad loans ratio resulted from the 1.32-percent decline in bad loans which happened at a time when the total loan portfolio expanded by 3.25 percent.

The BSP said NPLs were reduced to P88.58 billion in March from P89.76 billion in February while the total portfolio reached P2.486 trillion compared with P2.4 trillion the previous month.

Excluding interbank loans, however, the BSP said the industry’s NPL ratio also stayed under four percent, dropping to 3.98 percent from 4.19 percent in February and 5.22 percent in March 2008.

The BSP said the improvement in the bad loans ratio was the result of the 3.78 percent increase in regular loans to P2.225 trillion over that period, even faster than the expansion of the total portfolio in general.

Consequently, the BSP said the non-performing assets of UKBs also improved as a proportion of gross assets from 4.53 percent in February and 5.43 percent in March last year to 4.49 percent in March this year.

The BSP said it observed a drop in the NPAs of banks which was complemented by a slight growth in gross assets. The NPA level stood at P229 billion down from P229.2 billion in February and P247.35 billion last year.

On the other hand, the restructured loans to TLP ratio dropped to 2.03 percent from 2.21 percent in February and 2.9 percent last year. The decline was the result of the 5.33-percent drop in gross restructured loans to P50.75 billion which was accompanied by the increase in total loans.

But the BSP said it would also not be surprised if there would be a slight deterioration on the bad loans ratio of banks in the wake of the global crunch.

As banks start to clamp down on risky borrowers, bank lending would slow down to about 10 percent this year, losing momentum from the 20-percent growth rate recorded in 2008.

Governor Amando M. Tetangco Jr. told reporters earlier that bank lending would be ultimately affected by the economic recession in developed economies and the slowdown in growth in the rest of the world.

Tetangco said bank lending was already showing initial signs of slowing down, as banks become more cautious about lending to productive activities because of the rising possibility of default during an economic crunch.

“We’re looking at (a growth of) about 10 percent,” Tetangco said. “Credit growth is going to continue but at a slower rate.”

According to Tetangco, bank lending has continued at a “relatively healthy” pace but the slowdown in the economy would have a negative impact on credit that he said had begun showing signs of tightening.

In 2008, bank lending expanded by 20.5 percent, excluding placements with the Bangko Sentral ng Pilipinas (BSP).

But this year, Tetangco said the potential weakening of corporate and household balance sheets could lead to the deterioration the quality of banks’ loan portfolios.

“Individually, local banks have taken logical defensive action by being more cautious in lending and boosting their liquidity levels,” Tetangco said. “The risk is that this could result in less credit for productive purposes, which would add to the pressure on the real economy players.”

As the global economy slipped into recession, central bank officials said yesterday that banks have begun to tighten their credit standards and this could limit the effective of monetary policy easing. –Des Ferriols, Philippine Star