Rural, co-op banks post increase in bad loans

Bad loans held by rural and cooperative banks rose at the end of 2012 due to natural calamities that affected their borrowers’ ability to pay debts, the Bangko Sentral ng Pilipinas (BSP) said Tuesday.

In a statement, the BSP said the non-performing loans (NPL) of rural and cooperative banks reached 11.57 percent of the sector’s total loan portfolio of P127.47 billion as of the end of December, up from the 10.14 percent of a P123.65-billion portfolio a year ago.

This was also significantly higher than the 1.87-percent NPL-to-total loan ratio registered by universal and commercial banks in the same period, BSP data showed. Rural and co-op banks’ NPL data are released every six months.

Despite the rise in bad loans, the BSP said the sector remained strong, citing the significant increase in cash provisions for possible losses to 61.74 percent from 50.36 percent.

“An increase in loan loss provisioning indicates heightened prudence against credit losses,” the BSP said.

“Industry figures indicate that rural and co-op banks continue to take proactive steps in maintaining the level of their NPLs as well as coverage ratios,” the BSP said.

The BSP said rural and co-op banks made up only 2.74 percent of the entire banking sector, adding that the increase in bad loans was not reflective of the industry’s overall health.

In its statement, the BSP said rural banks posted a 10.65 percent NPL-to-total loans ratio, up from 10.32 percent in the same month the year before. Loan loss reserves, however, jumped to 59.47 percent from 50.98 percent.

Cooperative banks’ bad loans-to-total loans ratio rose to 19.84 percent in December 2012 from 10.32 percent in 2011.

“The increase was largely due to fortuitous events such as typhoons Gener, Habagat and Helen,” the BSP said.

The BSP said it would continue closely monitoring the NPL levels of various segments of the banking sector “to ensure that underwriting standards remain high in a low-interest rate environment.”