Banks’ exposure to bad debts fell once more in April as industry players continued to observe prudent credit standards in extending loans.
The non-performing loans (NPL) ratio of universal and commercial banks in the country settled at 2.3 percent by the end of April, better than the 2.95 percent registered in the same month last year, the Bangko Sentral ng Pilipinas reported Friday.
The latest figure was also an improvement from the 2.36 percent recorded last March.
NPL ratio is the proportion of non-performing loans, also called “bad” or “soured” debts, to the outstanding loans granted by banks. A bank loan is considered bad if it remains unpaid at least 30 days upon maturity.
Data from the BSP showed that the combined bad debts of universal and commercial banks amounted to P74.34 billion, while their outstanding loans reached P3.23 trillion.
The bad debts were 11 percent lower than P83.44 billion in April last year, while the outstanding loans went up by 14 percent from P2.83 trillion.
According to the BSP, the country’s universal and commercial banks have sufficient capital to cover potential credit losses—a factor that tends to strengthen the industry.
Because the reserves are even higher than the amount of bad debts, Philippine banks are now better insulated from credit losses brought on by soured loans, the central bank said.
Loan-loss reserves of banks as of end-April amounted to nearly 126 percent of their collective bad debts, better than the 121 percent of the same month last year.
“The industry’s provisioning against potential credit losses remained adequate,” the BSP said in a statement.
Many export-oriented firms from emerging economies like the Philippines have been badly hit by the prolonged debt crisis in the Eurozone, a key export market for these companies.
Europe’s debt woes directly affect Philippine exporters’ ability to service loans secured from local banks.
But the Bangko Sentral said that these adverse developments abroad would not endanger the integrity of universal and commercial banks in the country.
The banking sector has sufficient capital buffer to cover potential credit losses, it explained.
The NPL ratio has been hovering around the 2-percent territory since last year—the same levels seen prior to the Asian financial crisis of the late 1990s.
At the height of the crisis in 1997, the average NPL ratio reached double-digit levels.