Banks’ bad loans ratio down to 2.52%

The exposure of universal and commercial banks to bad debts declined in August from a year ago even as they extended more loans, a development that regulators credited to observance of prudent lending standards.

According to a report by the Bangko Sentral ng Pilipinas, the non-performing loans (NPL) ratio of universal and commercial banks settled at 2.52 percent by the end of August this year, improving from 3.25 percent as of the same period last year.

On a month-on-month basis, the latest NPL ratio was higher than the 2.45 percent in July.

The NPL ratio is the proportion of bad debts to outstanding loans extended by banks. Loans are described as “non-performing,” “bad” or “sour” if these remained unpaid for at least 30 days after maturity.

Documents from the BSP showed that combined outstanding loans of universal and commercial banks as of end-August this year amounted to P3.06 trillion, registering a nearly 17-percent increase from P2.62 trillion as of the same period a year ago.

The increase in loans did not cause the bad debts of banks to rise as regulators said they continued to observe proper lending standards.

Bad debts amounted to P76.96 billion, falling 9 percent from P84.91 billion over the same period.

The BSP also reported that the nonperforming assets (NPA) ratio of universal and commercial banks stood at 3.03 percent, improving from 3.77 percent a year ago and 3.07 percent the previous month.

The NPA ratio is the proportion of bad assets to total assets of banks. “Bad assets” are composed of bad loans and real properties acquired by banks from borrowers who defaulted on their loans.

The ability of banks to lend more to individual and corporate borrowers was attributed to their rising resources and liquidity, driven largely by growth in deposits from the public.

The BSP said the rising deposits in banks indicated that the sector continued to enjoy the confidence of the public.

So far this year, there were smaller industry players that were ordered closed by the BSP due to insolvency. Examples were thrift banks Banco Filipino and LBC Development Bank.

The central bank stressed that the banks that failed were not a representative of the state of health of the country’s entire banking sector.

The BSP said the country’s banking sector in general was healthy as it enjoyed rising resources, profitability, low exposure to bad debts and growing capitalization.

The state-owned Philippine Deposit Insurance Corp. (PDIC), the entity tasked with taking over closed banks and paying deposit insurance, also said the deposit insurance fund that it manages continued to be sufficient to meet the insurance requirements of depositors of closed banks.