Soured loans of small banks declined in Q2

Depositors are greeted by an iron grill gate and a notice announcing the closure of Rural Bank of San Fernando in San Fernando town, Cebu province last July. According to the central bank, small banks’ stock of bad debt declined at the end of the second quarter, led mainly by thrift banks. TONEE DESPOJO/CEBU DAILY NEWS

MANILA, Philippines—Small banks’ stock of bad debt declined at the end of the second quarter of the year, led mainly by thrift banks, which trimmed non-performing loan (NPL) levels and increased reserves for possible losses.

The Bangko Sentral ng Pilipinas (BSP) said combined NPL ratio of thrift, rural and cooperative banks improved to 7.32 percent of their total loan portfolio from 7.77 percent in March.

Despite the improvement, the level of soured loans held by these smaller banks was still more than double the NPL ratio of universal and commercial banks, which stood at 2.68 percent at the end of the first semester.

Thrift, rural and cooperative banks make up 10.76 percent, 2.74 percent and 0.22 percent, respectively, of the local banking industry’s total loan portfolio, which reached P4.36 billion at the end June.

“The monitoring of banks’ loan quality is part of measures to ensure that financial intermediaries continue to adhere to high credit standards,” the BSP said.

“This is essential to maintaining financial stability, which is a primary objective of the BSP,” it added.

Out of the three segments, thrift banks showed the best loan quality as its bad loan ratio fell to 5.94 percent in June from 6.13 percent in March. The drop in NPLs was also accompanied by a rise in loan-loss reserves to 72.28 percent of bad loans from 70.43 percent the previous quarter.

Cooperative banks, the smallest of the three segments, likewise showed an improvement in NPLs to 12.38 percent of their total loans, less than half of the 28.46 percent in March. This was the highest level of bad loans for the entire industry.

Loan loss provisioning of cooperative banks also improved 81.26 percent of NPLs from 55.63 percent the previous quarter.

Rural banks’ loans, meanwhile, rose to 12.36 percent of total from 11.83 percent in March. Provisioning for these NPLs also fell to 59.65 percent from 61.54 percent the previous quarter.