Banks’ non-performing loans ratio drops in Feb.

MANILA, Philippines—Universal and commercial banks in the country further trimmed their exposure to bad debts in February, an indication that they remained virtually shielded from the ill effects of the ongoing crisis in the Euro zone on loan-payment collection.

This was according to the Bangko Sentral ng Pilipinas, which on Friday reported that the average non-performing loans (NPL) ratio of universal and commercial banks slid to 2.34 percent in February from 2.93 percent in the same month last year.

The latest NPL ratio—the proportion of bad debts to outstanding loans—was also better than the 2.35 percent in January this year.

Debts are defined as “bad” and considered “non-performing” if these remain unpaid at least 30 days upon maturity.

Data from the BSP showed that combined outstanding loans of universal and commercial banks as of end-February amounted to P3.15 trillion, up by 13 percent from P2.79 trillion as of the same period of the previous year.

Non-performing loans reached P73.88 billion, rising by 9.7 percent from P81.79 billion over the same period.

According to the central bank, the NPL ratio, which has fallen to below the 3-percent threshold last year, is already the same as the levels seen prior to the 1997 Asian financial crisis.

Regulators said the decline in the exposure of banks to bad debts over the years since the late 1990s, when NPL ratios were in the double-digit territory, could be attributed to the adoption of prudent lending standards.

They said Philippine banks seriously took the lessons learned from the crisis, and became keen on lending to creditworthy borrowers.

However, some observers said that banks in the country have become too cautious in lending in that they are not maximizing their resources to extend more credit to consumers and businesses. They said banks have the capacity to help the economy grow by faster rates if only they would lend more.

The World Bank, for instance, said one way for the Philippines to achieve the goals of accelerating economic growth and making the growth “inclusive”–one that actually translates into poverty reduction—is for banks to lend more and fund job-generating investments. It also said that extension of credit to micro enterprises can help lift people out of poverty.

Bank lending in the country has actually been growing, but some economists said growth should be faster and be sustained over the medium term to have a more significant impact on the economy.

According to estimates, loans-to-deposit ratio of most universal and commercial banks stand at only between 60 and 70 percent. Economists said a ratio as high as 90 percent can still be considered comfortable.