Banks NPL ratio drops to record low of 2% in Oct

MANILA, Philippines - Banks’ soured loans as a proportion of their total loan portfolio dropped to a record-low in October, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Bank’s non-performing loan (NPL) ratio stood at two percent for the first 10 months of 2012, improving from 2.54 percent in the same period last year. It was also an improvement from 2.05 percent posted as of September.

NPLs are bank loans that remained unpaid 30 days after the due date. BSP is monitoring NPLs as they can put a pressure on banks’ balance sheets when accumulated, hence, affecting their capacity to lend.

“The BSP notes that the improvement in the NPL ratio has been achieved through a combination of a decline in the amount of NPL and the continuing rise in the total loan portfolio,” the central bank said in a statement.

Total credit granted reached P3.459 trillion as of October, 13.5 percent up from previous year’s P3.048 trillion. Of these loans, NPL amounted to P69.12 billion, down by more than a tenth year-on-year.

“This is of particular significance given the current market environment where benchmark interest rates continue to remain low,” the central bank said.

Last year, BSP’s key rates were slashed to their record low of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending to support growth.

With interest rates hitting the floor, authorities are hoping they could encourage more lending to boost consumption and investment. In the process, such activities are expected to contribute to economic growth.

“The industry’s provisioning against potential credit losses remained adequate,” the BSP said.

NPL coverage ratio – which measures banks’ capacity to absorb losses as a result of bad loans – improved to 138.73 percent from 119.07 percent during the same period, data showed.

Including foreclosed assets, non-performing assets (NPA) ratio likewise went up to 69.63 percent from year ago’s 62.15 percent.

“The BSP shall continue its efforts in crafting the appropriate regulatory framework to enhance the stability, transparency and efficiency of the banking system,” BSP Governor Amando Tetangco Jr. said in a separate statement.