Banking sector trims bad debt risks

Universal and commercial banks registered a lower exposure to bad debts in July as industry members maintained proper lending standards while they extended more loans to the public.

Regulators said the banking sector remained sound as big banks continued to keep their non-performing loans within comfortable levels.

And this only proves that, for now at least, the crisis in the euro zone has not spilled over to the Philippines, the regulators added.

Data from the Bangko Sentral ng Pilipinas showed that the amount of non-performing loans (NPL) of universal and commercial banks was about 2.18 percent of their total outstanding loans as of end-July.

This NPL ratio was lower than the 2.45 percent registered in July last year.

Since 2011, the average NPL ratio of the country’s big banks has been hovering in the 2-percent territory.

BSP officials said that, at this level, banks’ exposure to bad debts had become even more manageable compared with how the sector fared just before the Asian financial crisis of the late 1990s.

On a month-on-month basis, the latest NPL ratio was higher than the all-time low of 2.06 percent recorded in June.

The NPL ratio in July came about as the combined bad debts of universal and commercial banks amounted to P73.36 billion. Their total outstanding loans reached P3.37 trillion.

The amount of bad debts was actually higher by 0.4 percent from the year-ago figure of P73.05 billion. But the NPL ratios still dropped because the total outstanding loans grew by a much faster pace at 13.1 percent from only P2.98 trillion in the same period last year.

Regulators said the decline in the exposure of universal and commercial banks to bad debts over the years could be traced to the implementation of credit reforms in the late 1990s, or shortly after the financial crisis.

Since then, they said, bank regulations on lending have become more prudent. At the same time, banks also have adopted their own reforms.

But some economists believe that banks in the country may have become a little too cautious in lending. They said that, given the enormous liquidity of the banking sector, banks could actually lend more to help boost the economy.

Regulators said there should be more investment activities in the country so that demand for loans would rise, allowing the the economy to fully maximize the benefits of the banking sector’s growing resources.