The exposure of universal and commercial banks to bad debts fell in November to its lowest in 15 years—matching levels seen before the 1997 Asian financial crisis—as regulators pointed to the industry’s observance of prudent lending standards even as it pursued significant expansion of credit.
The Bangko Sentral ng Pilipinas said the declining nonperforming loans (NPL) ratio—the proportion of bad debts to total outstanding loans—of universal and commercial banks gave comfort that the banking sector could afford to continue supporting growth of the economy through the extension of more loans to individuals and enterprises.
In a report released Friday, the BSP said the NPL ratio of universal and commercial banks dropped to 2.39 percent in November from 2.54 percent the previous month and from 3.06 percent in November 2010.
One encouraging detail in the data, according to the central bank, was that the decline in the bad-debts exposure of the banks came about even as they gave out more loans to borrowers. This meant that the quality of loans haS significantly improved over the years as borrowers had better capacity to pay loans and as the banks enhanced their credit standards and payment-collection systems, the regulator said.
A bank loan is considered “bad” or “soured” if it remains unpaid at least 30 days upon maturity.
Documents from the central bank showed that the combined outstanding loans of universal and commercial banks in the country amounted to P3.16 trillion as of end-November last year, rising nearly 17 percent from P2.71 trillion as of the same period of the previous year.
Regulators attributed the expansion of credit to the growing liquidity of banks that was partly aided by the sustained rise in deposits from the public. Growing deposits, in turn, were due to sustained confidence of individuals and corporations in the country’s banking sector.
While the total loan portfolio of banks rose, the bad debts declined. Documents also showed that combined NPLs of universal and commercial banks settled at P75.35 billion, falling 9.3 percent from P83.09 billion the previous year.
The BSP also said the banks have sufficient buffer to absorb loan losses when borrowers totally abandon their obligations, given their rising reserves. Loan-loss reserves of banks as of end-November stood at P92.11 billion, or bigger than the amount of their bad debts.
Nonperforming assets (NPA) ratio—the proportion of bad debts and real properties taken over from borrowers who defaulted on their loans—improved as well, settling at 2.91 percent in end-November from 3.46 percent in the same period the previous year.