Banks’ bad loans to total loans ratio down to 3.07% in Nov.

Banks' bad loans to total loans ratio down to 3.07% in Nov.
By Michelle Remo
Philippine Daily Inquirer
First Posted 20:12:00 01/23/2011

Filed Under: Banking, Economy and Business and Finance, business
MANILA, Philippines—The proportion of bad debts to the total loans extended by universal and commercial banks shrank further in November, the Bangko Sentral ng Pilipinas reported Friday.

The BSP said banks registered a non-performing loans (NPL) ratio of 3.07 percent by the end of November, down from 3.26 percent in the same month last year.

This came about as bad loans settled at P83.33 billion, falling by 2 percent from P85.17 billion, while the banks' total loan portfolio increased by 3.8 percent to P2.71 trillion from P2.61 trillion a year ago.

Regulators said the drop in the level of exposure of universal and commercial banks to soured loans despite an increase in their lending indicated that the banks had been observing prudent lending standards.

They also said that improved economic conditions enhanced the ability of borrowers to pay their debts.

According to industry definition, a loan is considered a bad debt if it has remained unpaid over 30 days upon maturity.

The central bank also reported that the non-performing assets (NPAs) of these banks fell by nearly 5 percent to P210.52 billion in November last year from P221.25 billion a year ago.

NPAs are the sum of bad debts and the collective value of real and other properties acquired (ROPA) by the banks due to loan defaults.

During the period, the banks also posted a decline in their NPA ratio—the proportion of NPAs to the total assets of banks—to 3.46 percent from 4.04 percent in the previous year.

The central bank said the minimal exposure of universal and commercial banks to bad loans and assets was one of the highlights of the local banking industry's performance throughout the latest global economic turmoil.

Unlike their Western counterparts, universal and commercial banks in the country have been virtually unscathed by the crisis partly because of efforts to keep away from the temptation of careless lending.

Nonetheless, some economists said the very small exposure to bad assets showed there was much room for banks in the country to lend more aggressively.

The economists noted that banks could lend more, given their huge liquidity, even without exposing themselves to a significantly higher level of bad debts.

They said the more than P1 trillion in cash parked by the banks in the BSP's special deposit account facility could help sustain a robust economic growth if a portion of this would be used to finance consumption and investments.

Industry players said in response to the economists' observation that banks were willing to lend more, but there had to be more opportunities for credit, specifically sound investment activities that could be financed with bank loans.

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