Local regulators have issued stricter reporting requirements for auto loans extended by banks as part of continuing efforts to identify possible risks in the financial system.
The policymaking Monetary Board of the Bangko Sentral ng Pilipinas (BSP) earlier this month ordered local banks to start submitting more detailed disclosures on the nature of their auto loans.
Among the main changes was the need to distinguish between car and motorcycle loans. The BSP also wanted banks to disclose interest or discounts earned for each type of auto loans, Circular No. 883 showed.
The new focus on auto loans followed a pattern of the BSP becoming stricter on the types of consumer credit. Demand for financing from retail banking customers has risen in recent years due to low interest rates and rising household incomes.
Consumer loans, which are in the form of home mortgages, credit cards, auto and salary loans, rose by 25 percent in 2014, according to the BSP, outpacing the 16.8-percent expansion in the total loan portfolio of the country’s major banks in the same period.
Rapid growth in consumer loans reflected the industry’s efforts to expand its retail businesses where returns are higher. The shift was a result of volatile financial market conditions that wiped out trading profits for banks, forcing lenders to search for yields elsewhere.
Similar regulations requiring more detailed reports have been issued covering real estate, salary and credit card loans.
At the end of 2014, the combined net income of the country’s major banks’ stood at P121.66 billion, down 8.17 percent year-on-year.
Data from the BSP showed borrowers were more likely to default on all types of consumer credit vis-a-vis commercial loans that banks extended to companies.
Close to 5 percent of all consumer loans were considered “nonperforming” at the end of March, meaning borrowers have missed payments by a month or more. Asset quality for auto loans was similar, with 4.78 percent of the total having soured at the end of March.
Nonperforming loans or NPLs held by major banks stood at 1.95 percent of the industry’s total portfolio in the first quarter of 2015, according to BSP data.
Auto loans totaled P244.61 billion at the end of the first quarter or the equivalent of 4.51 percent of the combined portfolios of universal, commercial, and thrift banks.