The country’s big banks kept their exposure to bad debts at a record low in August even as they extended more loans to individual and corporate borrowers.
According to the Bangko Sentral ng Pilipinas, the “comfortable” ratio of non-performing loans (NPL) was one of the indications that the banking sector remained healthy and relatively unharmed by the crisis confronting financial institutions in the eurozone.
Based on data from the BSP, universal and commercial banks’ NPL ratio—the proportion of bad debts to their total loan portfolio—stood at a historic low of 2.08 percent in August.
The latest ratio was unchanged from the previous month, but was even lower than the already comfortable 2.52 percent recorded in August last year.
Regulators said banks are encouraged to lend more to help fuel faster growth of the economy, but at the same time required to keep their exposure to bad debts within manageable levels.
Bank loans become “bad debts” or are defined as “non-performing” when these remain unpaid for a specified period of time.
Data further showed that outstanding loans of universal and commercial banks amounted to P3.38 trillion by the end of August, up by about 10 percent from P3.06 trillion as of the same period last year.
Industry players said the increase in the loan portfolios of banks proved that there is appetite for lending, especially since banks are currently enjoying significant levels of liquidity.
Of the outstanding loans as of end-August, some P70.43 billion was classified as non-performing. This was down year on year by nearly 5 percent from P76.96 billion.
Central bank officials said the decline in NPLs showed that banks were keeping prudent credit standards even as they move to lend out more to clients.
Officials said credit growth in the banking system partly aided the economy’s favorable performance in the first semester, when it grew by an above-target 6.1 percent.