Banks see downtrend in loan delinquency

Local economy still unaffected by credit crunch

MANILA, Philippines—Big Philippine banks saw a surprise downtrend in loan delinquency in the first quarter, suggesting that the local economy remained resilient so far to credit stresses that have bludgeoned financial institutions in the United States and elsewhere in the world.

“Defaults are declining surprisingly,” said Pascual Garcia III, president of the country’s second largest thrift bank Philippine Savings Bank.

Garcia said PSBank’s loan delinquency had gone down by more than 1 percent since end-2008, which was better than expected given expectations of a tougher economic environment this year.

In explaining the decline to his bank’s board of directors, Garcia said it must be partly because the inflation rate, or the rate of increase in average consumer prices, had gone down sharply from last year when the rice crisis as well as skyrocketing global oil prices caused a double-digit price upsurge.

“There are no massive job losses so the impact of the global crisis is limited so far,” said Garcia, who is also president of the Chamber of Thrift Banks.

PSBank, the first publicly listed bank to release its first quarter results, saw a decline in non-performing loans (NPL) as a ratio of total loans to 5.4 percent from 6.2 percent. It also earlier reported a 21-percent rise in net profit.

Teresita Sy-Coson, chair of the country’s biggest commercial bank Banco de Oro Unibank, said the trend of declining loan delinquency may be an industry-wide phenomenon. She said BDO, which has yet to release its first quarter results, has seen an improvement in its NPL ratio in the first three months.

“It’s probably because with the limited market right now, there’s a flight to quality, so you get the better ones (borrowers),” Sy-Coson said in a separate interview.

“And when you have (loan) growth, the other negative items will be less. So if even if NPLs were maintained at the same level in peso terms, when you grow loans, the ratio improves. I think all of us are seeing that,” she said.

Based on the latest report from the Bangko Sentral ng Pilipinas, the NPL ratio of commercial banks stood at 3.73 percent of total loans as of end-February. This was favorably lower than the 3.82 percent in end-January and 4.68 percent in February last year.

The country’s third largest bank, the Ayalas’ Bank of the Philippine Islands, also reported that its net 30-day NPL ratio declined to 3.26 percent in March from 3.94 percent a year ago.

The improvement in NPL loan ratio, aided by an expansion in loans booked, is also being felt by smaller commercial banks.

“The Philippines is different from other markets. Outside, nobody wants to lend because they were traumatized (by the US subprime crisis). But here, there’s so much liquidity in the market and every one is fund-raising and getting them. It’s trickling down even to the small entrepreneurs,” said Jaime Gonzales, chair of Export and Industry Bank.

Gonzales said this might be due to two key economic drivers that have so far bucked pessimistic expectations—business process outsourcing and overseas employment.

Aurelio Montinola III, president of BPI (which reported an 86-percent rise in first quarter profit), said his banks’ strong results affirmed the resilience of the local economy, the strength of the bank’s franchise as well as the value of efforts to diversify revenue base and improve credit risk profile.

“However, we acknowledge the severity of the present crisis and that the local economy and the banking industry remain vulnerable to a further deterioration in global economic activity. Signs of stabilization overseas appear tentative and can not be construed as the beginning of an enduring recovery,” said Aurelio Montinola, BPI president and head of the influential Bankers Association of the Philippines.–Doris Dumlao, Philippine Daily Inquirer