Banks’ bad debt exposure continues to drop

The exposure of universal and commercial banks to bad debts continued to decline in October which, according to regulators, indicated the financial stability of the country’s banking sector.

The Bangko Sentral ng Pilipinas reported Tuesday that the nonperforming loans-to-total loans ratio of universal and commercial banks averaged 2.54 percent as of the end of October, improving from the 3.19 percent in the same period last year.

The latest NPL ratio, however, was higher than the 2.46 percent as of end-September this year.

NPL ratio, one of the most closely watched indicators for the banking sector, is the proportion of bad debts to total outstanding loans of banks. Loans are described as “bad” or nonperforming if they remain unpaid at least 30 days upon maturity.

The year-on-year decline in the NPL ratio was achieved despite moves of banks to extend more loans. Industry players said this was aided by efforts of banks to maintain high quality of loans by observing prudent lending standards.

The outstanding loans of the banks as of end of October amounted to P3.048 trillion, up by 17 percent year on year from P2.604 trillion.

Bad debts stood at P77.38 billion in the same period, declining by nearly 7 percent from P83.11 billion a year ago.

The growth in loans was supported by the rising resources and improving profitability of banks.

Regulators said the appetite of banks for lending was stronger this year compared to the previous years because their rising liquidity encouraged them to engage in more investment activities, including lending.

The BSP said the rising bank lending was a favorable development especially since this does not come with higher exposure to loan defaults.

Regulators said banks were urged to continue lending more to individuals and enterprises to help boost the growth of the economy, but added that banks were directed to always maintain prudent standards in their lending operations.

The central bank also reported that the nonperforming assets-to-total assets (NPA) ratio of the universal and commercial banks improved to 3.03 percent as of the end of October from 3.63 percent in the same period last year.

NPAs are bad loans plus properties acquired by banks from borrowers who defaulted on their loans. Such properties are removed from the list of NPAs if these are sold by banks.

The central bank also reported that banks had sufficient buffer in case they fail to collect payments for the bad debts.