Bad assets from 1990s crisis still weighing PH banks down

Philippine banks have not completely recovered from the Asian Financial Crisis in the late 1990s, with a significant portion of bad assets incurred during the tumultuous period still weighing down the industry’s books.

In a recent briefing, Standard & Poor’s said local banks still were still holding assets that were foreclosed during or shortly after the crisis that crippled the industry. Many of these assets remain unattractive to buyers to this day, leading to difficulties in the full cleansing of balance sheets.

“During the 1997 Asian crisis, when loans turned bad, banks acquired a lot of these properties on their books,” S&P Financial Institutions Ratings director Ivan Tan said.

“Foreclosed properties, the ones that were commercially viable have been sold. Others—warehouses, factories— the potential for selling these properties is quite low,” he said.

Tan said the experience from the 1997 crisis had made Philippine banks among the most conservative in the region, particularly in the retail consumer segment where risks are higher.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed real and other properties acquired (Ropa) held by universal and commercial banks totaled P82.816 billion, down 6.35 percent year-on-year.

Nonperforming loans (NPL) of these major banks, excluding interbank loans, stood at 2.01 percent of their total loan portfolios, down from 2.04 percent in January of 2015. NPL levels have gone down from as high as 17.1 percent in September 2000.

S&P said the trauma caused by the accumulation of toxic assets in the Asian crisis has led Philippine banks to focus mainly on commercial lending to big companies, and on building up treasury businesses to take advantage of gains from trading.

The debt watcher said it expected profit growth in the banking sector to remain subdued as local players struggle to maintain prudential standards while aggressively growing their exposure to the more profitable retail businesses.

In the first quarter of 2015, major banks’ profits totaled P32.77 billion, up slightly from P31.97 billion in the same three-month period in 2014.