Banks’ bad debts ratio at all-time low

The exposure of universal and commercial banks to bad debts fell in June to its lowest level in history in what bankers and regulators credited to prudent credit standards.

The Bangko Sentral ng Pilipinas reported Friday that the nonperforming loans (NPL) ratio of universal and commercial banks settled at only 2.45 percent in end-June this year.

This was below the previous record-low of 2.8 percent recorded in December 1996, or prior to the 1997 Asian financial crisis that caused levels of bad debts of banks to swell.

The NPL ratio is the proportion of bad debts to total outstanding loans of banks. Debts are defined as “bad” or “nonperforming” if these remain unpaid at least 30 days after maturity.

The year-on-year decline in the bad-debt exposure of the country’s big banks resulted from both the drop in the non-performing loans and the increase in total loan portfolio.

Regulators said banks were urged to increase their loan portfolio and at the same time trim their NPLs.

According to a report by the central bank, the combined outstanding loans of universal and commercial banks amounted to P3.03 trillion as of end-June this year, up 13 percent from P2.68 trillion a year ago.

On the other hand, nonperforming loans amounted to P74.14 billion, falling nearly 14 percent from P85.99 billion in June last year.

Moreover, the BSP said universal and commercial banks in the country have adequate capital buffer to protect themselves from losses in case of defaults.

The NPL coverage ratio—the proportion of reserves for bad debts—improved to 126.17 percent in end-June from 108.99 percent a year ago.

The BSP said the fact that the NPL coverage ratio exceeded 100 percent indicated that banks could weather any shock arising from default risks.

Meanwhile, the ratio of real and other properties acquired or Ropas to gross assets likewise improved to 1.86 percent in end-June from 2.26 percent last year. Ropas are properties acquired by banks from borrowers who have defaulted on their loans.

The BSP said the improving average NPL ratio of universal and commercial banks in the country reflected the soundness of the Philippine banking sector.

Regulators said uncertainties in the global economy were expected to have some impact on the Philippines and the country’s banking sector, but the favorable financial indicators for banks in the country gave them the ability to weather significant negative effects of external factors.