Banks’ NPL ratio down to 2.97% as of end-December

MANILA, Philippines – The ratio of soured loans of universal and commercial banks to the industry’s total loan portfolio fell to its lowest level in 13 years last year on the back of the country’s resilient economy that enabled household and corporate borrowers to pay their outstanding financial obligations, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

BSP officer-in-charge Diwa Guinigundo said the non-performing loans (NPL) ratio of universal and commercial banks improved to 2.97 percent as of end-December, its lowest level since December 1996 when the ratio reached 2.80 percent

Guinigundo added that the NPL ratio registered in December was also 0.55 percentage point lower than 3.52 percent recorded in December 2008 and 0.29 percentage point lower than the 2.97 percent booked in November last year.

He attributed the improvement in the banks’ NPL ratio to 8.25 percent drop in the value of soured loans to P80.91 billion last December from P88.19 billion in the same month in 2008. The amount was also five percent lower than the soured loans that amounted to P85.17 billion as of end-November.

On the other hand, Guinigundo said the industry’s total loan portfolio (TLP) expanded by 8.9 percent to P2.724 trillion as of end-December from the end-December 2008 level of P2.502 trillion. The industry’s TLP was also 4.21 percent higher than the end-November 2009 level of P2.614 trillion.

Guinigundo cited the country’s resilient economy and better corporate earnings as well as lower interest rates that enable borrowers to settle their financial obligations.

Benign inflation enabled the BSP to ease its monetary policy by slashing its key policy rates by 200 basis points between December 2008 and July 2009. This resulted in a record low overnight borrowing rate of four percent and an overnight lending rate of six percent.

The gross assets of universal and commercial banks increased by 8.75 percent to P5.602 trillion as of end-December from P5.151 trillion as of end-December 2008 while the industry’s non-performing assets (NPA) declined by 6.9 percent to reach P216.32 billion from P232.42 billion.

This resulted in a bad debt ratio of 3.86 percent as of end-December from a year-ago level of 4.51 percent.

Guinigundo also noted that the loan loss reserve (LLR) of banks inched up by three percent to P90.9 billion as of end-December from P88.2 billion as of end-December 2008 resulting in a better NPL coverage ratio of 112.34 percent from 100.01 percent.

“The industry provided adequate provisioning against potential credit losses,” he said.

Last October, the BSP’s Monetary Board earmarked P5 billion in special rediscounting budget to help microfinance, small and medium enterprises ravaged by the natural calamities.

Under the BSP rediscounting facility, banks may borrow from the central bank an amount equivalent to a rediscounted value of the collectible or debt instrument used to back the borrowing. It is intended to help ensure that banks have available funds for lending even when their collectibles have yet to fall due or to be settled.

The BSP has urged banks to lower lending rates after adopting a package of relief measures for banks to enable them to extend assistance to bank customers adversely affected by the natural calamities. –Lawrence Agcaoili (The Philippine Star)