Soured bank loans down to record low in 2014

MANILA, Philippines–Bad loans held by the country’s major banks fell to a record low at the end of December, indicating that lenders continued to stick to prudent credit standards despite ample liquidity.

Data from the Bangko Sentral ng Pilipinas (BSP) showed nonperforming loans (NPL) held by universal and commercial banks, as a ratio of the total, declined at the end of the year. NPLs rose in terms of absolute value, but this increase was outpaced by the growth in outstanding loans.

At the end of December, NPLs as a ratio of the total loan portfolio declined to 1.81 percent from 2.04 percent in September 2014, the BSP said in a report.

“NPL management and provisioning for potential credit loss are prudential measures that foster the stability of individual banks as well as the domestic banking system,” the BSP said in a statement.

This is in line with the trend of declining NPLs in the country observed over the past several years. NPLs are loans that have remained unpaid at least a month after the due date.

Gross NPLs at the end of December were up 2.32 percent year-on-year to P92.61 billion.

Despite the increase in gross NPLs, banks’ loan loss reserves remained ample. At the end of the year, banks had an NPL coverage ratio of 143.12 percent—more than enough to cover losses from soured loans.

The Bangko Sentral ng Pilipinas (BSP) also noted that gross NPLs across economic sectors remained manageable.

This was seen in financial intermediation, real estate, renting and business activities, manufacturing, wholesale and retail trade, and electricity, gas and water supply, which represented about 70 percent of the banks’ total loans during the period.

Earlier, the BSP reported that growth of outstanding loans of commercial banks, net of reverse repurchase slowed down to 16.8 percent in December from 20.1 percent in November. This came as demand for credits stayed strong due to the country’s growing economy.

Loans for production activities—which comprised about four-fifths of banks’ aggregate loan portfolio—expanded by 15.4 percent in December from 18.7 percent in November.