Banks’ bad loan ratio down to 2.18% in June

Universal and commercial banks further trimmed their exposure to bad debts, with their average non-performing loans (NPL) ratio hitting a historic low of 2.06 percent in June as they maintained lending standards that regulators deemed prudent.

Governor Amando Tetangco Jr. of the Bangko Sentral ng Pilipinas said the declining proportion of bad debts to total loans of large banks was one indication that the country’s banking sector remained healthy despite the crisis being experienced by its counterparts in the euro zone.

The latest NPL ratio was better than the 2.18 percent registered in May and the 2.45 percent recorded in June last year, documents from the BSP showed.

The combined bad debts of universal and commercial banks amounted to P69.05 billion while their total loan portfolio stood at P3.36 trillion.

The latest amount of bad debts, or loans that have remained unpaid for a prescribed period after maturity, was down nearly 7 percent from P74.14 billion in August last year. The latest total loan portfolio was up nearly 11 percent from P3.03 trillion in August last year.

Since last year, universal and commercial banks in the country have been posting an average NPL ratio below the 3-percent level, beating healthy figures seen prior to the Asian financial crisis.

Central bank officials said the ability of large banks to keep their exposure to bad debts minimal could be credited to the adoption of stringent lending standards.

Officials said banks were encouraged to keep their NPL ratios low even as they were urged to extend more loans to credit-worthy borrowers to help accelerate economic growth.

While the tendency of big banks to observe prudent credit standards helps keep their exposure to bad debts minimal, some economists are of the view that banks in the country are too conservative in lending and should extend more loans to aid in speeding up economic growth.

Banks have P1.8 trillion in the special deposit account (SDA) facility of the Bangko Sentral ng Pilipinas that earn about 4 percent across all maturities.  Michelle V. Remo