PNB's bad loans hit 31%

The Philippine National Bank (PNB) has increased its loan loss provision or the amount set aside for bad loans by almost three times to P21 billion as of end-April from P8 billion in end-December as its bad loans continued to rise, PNB president Feliciano Miranda told the STAR yesterday.

Miranda said the higher loan loss provision was more than enough to cover its rising non-performing loans (NPLs) that have reached around P31 billion (31 percent of its estimated P100-billion loan portfolio) from around P29 billion in end-1999. NPLs or bad loans are those left unpaid for three straight months.

The amount for loan loss provisioning, he said, was higher than the P8 billion recommended by Price Waterhouse, an auditing firm tasked by the National Government to assess PNB's finances. He said the bank felt that due to the economic difficulties, there was a need to provide more cushion against NPLs.

"Price Waterhouse recommended only P8 billion using its own standards. But PNB felt there could be more, so we decided to be conservative," Miranda explained.

The higher loan loss provision, he said, is part of the bank's efforts to "clean up its books" to make it more attractive to prospective investors.

On June 9, the government and Lucio Tan will be selling their combined 76-percent stake in the bank to interested bidders. Interviewed in Beijing, Tan said he would not agree to another postponement. "It has been postponed for three times already."

The government still owns 30 percent of the bank while Tan has acquired 46 percent by buying PNB shares from the secondary market. Miranda said Tan spent around P9.3 billion to acquire these shares.

"We have been cleaning up the books of the bank. We are trying to evaluate the loan accounts. We want to see if these loans are still collectible. If it is doubtful, we provide the necessary valuation reserves (or loan loss provisioning)," he explained.

Because of the provisioning, he said the bank posted a net loss of P9 billion last year and P993 million during the first quarter of this year. He said the bank could have earned a net income of P1.5 billion last year had it not been for the required loan loss provision which was taken from its profits.

The bank was among those with the highest NPL ratio (NPL over total loans) in the industry. As of the first quarter, the average NPL ratio for the 53 commercial banks stood at 14 percent. A series of big loans that have turned sour during the crisis caused a deterioration in its loan portfolio.

Among the bank's big time borrowers that were not able to pay their loans are musician turned real estate developer Ramon Jacinto, Victorias Milling Corp., and Vitarich. These loans, except for that of Jacinto, have been restructured. The bank has foreclosed the Buedia property of Jacinto and it is in the process of restructuring his remaining debts.

The bank used to be the country's biggest in all aspects in the industry, including size of assets, capital, deposits, and loan portfolio. But because of its inability to raise capital and a series of setbacks on its lending activities. PNB has been overtaken by Metrobank and Bank of the Philippine Islands, now the first and second largest banks in the country.