Banks’ NPL ratio drops to lowest in 14 years

MANILA, Philippines – The non-performing loans (NPLs) ratio of universal and commercial banks continued to improve in June as the industry’s total loan portfolio outpaced the build-up in bad loans in light of the country’s improving economy, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Data released by the BSP showed that the NPL ratio of banks eased to 2.45 percent in June from 2.8 percent in May, marking the fifth consecutive month that the ratio was below three percent.

The central bank said this was also the lowest NPL ratio since late 1996 or before the onset of the 1997 Asian financial crisis.

“This ratio is better than the end-December 1996 ratio of 2.80 percent, the lowest NPL ratio prior to the 1997 Asian crisis,” the BSP stressed.

Bad loans peaked at more than 18 percent in October 2001 due to defaults by corporate borrowers after the crisis. Since then, banks have set up higher provisions against potential credit losses and more stringent rules and regulations on loans.

In June, banks’ total loans reached P3.03 trillion, up 3.5 percent from May and 13 percent higher from the year before.

Bad loans net interbank loans eased to 2.62 percent of total loans from three percent in May and the year ago’s 3.64 percent.

The BSP said the expansion in the industry’s total loan portfolio outpaced the increase in non-performing loans.

Loans extended by universal and commercial banks went up by 13 percent to P3.03 trillion as of end-June from P2.68 trillion as of end-June last year. The industry’s total loan portfolio was also 3.4 percent higher than the end-May level of P2.929 trillion.

On the other hand, the industry’s non-performing loans declined by 13.8 percent to P74.14 billion in June from a year-ago level of P85.99 billion. The level was 9.5 percent lower than the end-May level of P81.91 billion.

The gross assets of universal and commercial banks expanded by 12 percent to P6.391 trillion in end-June from a year-ago level of P5.706 trillion while the industry’s non-performing assets (NPA) retreated by 10.2 percent to P193.66 billion from P215.51 billion.

Likewise, the BSP said the NPL coverage ratio or ratio of loan loss reserves to NPLs strengthened to 126.17 percent from 108.99 percent.

“The industry provided adequate provisioning against potential credit losses,” the BSP stressed.

Latest data showed that banks operating in the Philippines posted its fastest lending growth in 25 months after expanding by 18.8 percent in June as demand for loans continue to increase due to increased domestic economic activities.

Loans have been growing steadily at double-digit rates of 11 percent in January, 12.3 percent in February, 14.1 percent in March, 14.2 percent in April, and 17.4 percent in May and that the increase in June was the highest rate recorded since April 2009.

Data showed that bank loans reached P2.59 trillion as of end-June or P410 bilion higher than a year-ago level of P2.18 trillion as of end-June last year.

Economic managers through the Cabinet level Development Budget Coordination Committee (DBCC) see the country’s domestic output as measured by the gross domestic product (GDP) growing between seven percent and eight percent this year and next year. –Lawrence Agcaoili (The Philippine Star) with a report from Reuters