Small banks’ bad loans up by 10%

Soured loans held by small domestic banks grew by 10 percent in the first quarter amid aggressive lending activities, based data released by the central bank.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said the provisions of thrift, rural and cooperative banks for these nonperforming loans (NPL) also rose as they sought to cover possible losses that might affect the welfare of their depositors.

The combined nonperforming loans (NPLs) of thrift, rural and cooperative banks represented 7.77 percent of their total loan portfolio of P568.71 billion at the end of the first quarter this year.

The BSP attributed the increase in the industry’s NPL ratio this year from 7.61 percent last year to the 10.3-percent year-on-year rise in soured loans vis-à-vis the 8-percent increase in loan portfolio in the same period.

The banks’ loan loss reserves for bad loans, meanwhile, stood at 66.52 percent of NPLs in March, up from the 64.60 percent a year ago.

“Provisioning for NPLs is a prudential measure for mitigating potential credit losses,” the BSP said.

The risk of small banks’ level of bad loans undermining the health of the country’s financial system was downplayed by the central bank, saying that thrift banks made up only 10.47 percent of the total industry. Rural and cooperative banks, meanwhile, were just 2.89 percent and 0.20 percent, respectively, of the Philippine banking system’s total loan portfolio in March this year.

NPLs of universal and commercial banks, which dominate the country’s banking system, eased to 2.68 percent of their loan portfolio from 2.75 percent in March and 3.01 percent in June of 2012.

The BSP said local banks were able to resist the temptation of relaxing their standards and lend excessively to the public to increase profits. It said bank lending standards remained high despite the ample liquidity in the system.

The rise in NPLs was attributed to rural and cooperative banks, which saw bad loans reach 13.26 percent and 14.22 percent of their respective loan portfolios.

Thrift banks saw their NPLs ease to 6.13 percent of their loan portfolio as of the end of March, from 6.48 percent a year ago. This was matched by a slight rise in the thrift banks’ loan loss reserves to 70.43 in March from 69.64 percent a year ago.