Rural banks’ exposure to bad debts on the rise

MANILA, Philippines—The rural banking sector’s exposure to bad debts rose in the third quarter of 2011, breaking into the double-digit territory, the Bangko Sentral ng Pilipinas reported Friday.

Data from the BSP showed that the average non-performing loans (NPL) ratio of rural banks in the country hit 10.25 percent as of end-September 2011, rising from 9.63 percent of the same period the previous year.

The latest NPL ratio—the proportion of bad debts to total loan portfolio—was, nonetheless, better than the 10.42 percent recorded as of end-June 2011.

The increase in the exposure to bad debts came about as the increase in non-performing loans outpaced the rise in total loan portfolio.

Bad debts totaled P11.2 billion, up by 19 percent from P9.4 billion. On the other hand, outstanding loans of rural banks amounted to P109 billion, up by 11.5 percent from P97.79 billion.

The increase in rural banks’ exposure to bad debts, or loans that remained unpaid for at least 30 days upon maturity, prompted regulators to push consolidation among the industry players.

Under the Strengthening Program for Rural Banks (SPRB), a government initiative led by the BSP and the Philippine Deposit Insurance Corp., financially healthy banks that will acquire rural banks will be given incentives. The incentives include loans and forms of regulatory relief.

Meantime, the thrift banking sector registered a lower level of exposure to bad debts during the same period.

Data from the BSP showed that average NPL ratio of thrift banks in the country reached 6.23 percent by the end of September 2011, better than the 8.21 percent recorded in the same period the previous year.

The latest NPL ratio for thrift banks was, however, a bit higher than the 6.18 percent registered as of end-June 2011.

Regulators said thrift banks’ prudent lending led to the the year-on-year improvement in the NPL ratio.

Outstanding loans of thrift banks amounted to P364.47billion as of end-September—up by 6 percent from the P343.06 billion of the same period the previous year.

Bad debts of thrift banks stood at P22.7 billion, down by 19 percent from P28.18 billion.