Rural banks report rising soured loans

More clients of rural and cooperative banks missed loan payments at the end of the first quarter, leading to the further deterioration in the asset quality of this fragmented sector.

Data from the Bangko Sentral ng Pilipinas (BSP) showed an increase in non-performing loans (NPL) held by small banks, which serve small communities often beyond the reach of bigger lenders.

The risk of weakness among rural banks spreading to other parts of the financial system remains low. Small banks, despite outnumbering all other types of lenders, account for a fraction of the industry’s total assets.

In a statement released recently, the BSP said 12.04 percent of all loans held by rural and cooperative banks at the end of March were unpaid at least a month after falling due. This level of NPLs was up from 11.85 percent at the start of the year.

The growth of bad loans rose faster than the expansion of the subsection’s portfolio. NPLs were up 2.17 percent year-on-year, while the total loan portfolio rose by only 0.51 percent.

“In line with its financial stability agenda, the BSP monitors the loan quality of banks as part its broader efforts to promote sound credit risk management among these lenders,” the regulator said in a statement.

To mitigate credit risks, the BSP said banks set aside loan loss reserves amounting to 57.56 percent of their gross NPLs at end-March. The figure is marginally lower than the 58.30 percent posted a quarter earlier.

Among economic sectors, the largest recipients of loans from rural and cooperative banks at end-March 2015 were agriculture, forestry and fishing, wholesale and retail trade, loans to individuals for consumption purposes, and real estate activities.

At the end of March, the banking sector’s total assets stood at P11.03 trillion. Rural and cooperative banks’ total assets reached just P218.29 billion at the end of the same month.