Rural banks’ bad loans on the uptrend

The gross nonperforming loans (NPLs) of the country’s cooperative and rural banks further rose at end-March, marking the third consecutive quarter that smaller banks held higher bad loans.

The Bangko Sentral ng Pilipinas (BSP) reported over the weekend that the combined gross NPLs of rural and cooperative banks amounted P18.11 billion at the end of the first quarter, up from P17.31 billion at end-2013 and P17.25 billion at end-March last year.

Despite the increase in amount, the BSP noted that cooperative and rural banks’ NPLs as a percentage of the total loan portfolio had “largely been stable” on a quarter-on-quarter basis.

The small banks’ NPL ratio at end-March was 13.14 percent, almost the same as the previous quarter’s 13.13 percent and an improvement from the 13.32 percent posted in March last year.

According to the BSP, rural and cooperative banks allotted loan loss reserves worth 58.58 percent of their gross NPLs during the first quarter as a form of prudential measure to mitigate credit risks. This allotment was lower than the preceding quarter’s 59.68 percent as well as the 60.41 percent set aside in the first quarter of 2013.

As of end-March, lending activities of cooperative and rural banks comprised 2.75 percent of the banking system’s P5-trillion TLP, while their NPLs a mere 0.36 percent of the industry-wide TLP.

Historically, bad loans in the banking industry have been highest in the rural bank sector, because of lower credit standards. Ben O. de Vera