Bad loans of thrift banks slightly down

The non-performing loans (NPLs) or bad loans of thrift banks improved slightly to 11.94 percent in May from 11.98 percent in the previous month.

In absolute terms, bad loans of thrift banks in May totaled P16.457 billion compared to the previous month’s P16.742 billion.

Data from the Bangko Sentral ng Pilipinas (BSP) also showed the NPL last May was worse compared to the previous year’s 11.76 percent.

In May, thrift banks’ total loan portfolio (TLP) also deteriorated to P137.890 billion, contracting by 1.36 percent from the previous month’s TLP of P139.786 billion.

The industry coverage ratio or loan loss reserves was upgraded to 48.8 percent from 47.9 percent a month ago as loan loss provisions increased by 0.2 percent to P8.03 billion from P8.016 billion even as NPLs dropped 1.7 percent.

During the period, gross restructure loans also went up to P3.879 billion from P3.352 billion in April.

Also, foreclosed properties inched up P22.901 billion from P21.483 billion.

Asset quality, on the other hand, weakened as non-performing assets ratio which consists of NPLs and foreclosed properties rose from 16.36 percent to 16.76 percent this May, fueled by the rise in foreclosed properties.

The BSP noted that the non-performing assets ratio is little changed from the previous year’s 16.77 percent.

Rural banks want to sell foreclosed assets

Meanwhile, rural bankers are pressing government to immediately implement the legal framework that would allow them to sell foreclosed lands.

In an interview, Rural Bankers Association of the Philippines president Nicolas L. Lim said that with the legal framework, rural banks would be able to dispose of foreclosed properties to liquidate their huge non-performing loans (NPLs).

Lim said that government had made amendments in 1994 to the Comprehensive Agrarian Reform Law of 1988 (Republic Act 6657) which in effect allows rural banks to dispose of their foreclosed properties.

Prior to the amendments, all foreclosed properties automatically fall under the jurisdiction of the CARP Law thus freezing the assets until government, through the Department of Agriculture (DAR), the Department of Agrarian Reform (DAR) and the Department of Interior and Local Governments (DILG) have determined the disposition of these properties.

The foreclosed properties are to be covered by a government-issued certificate of land ownership awarded under the CARP Law. These are non-transferable for at least 10 years except to the heirs or to the National Government.

This condition has disallowed rural banks from disposing of their huge bad debts since these certificates are considered to have no market value. From earlier studies, the disposition of the foreclosed properties, which fell under the CARP Law would take almost 15 years.

"It has become a hindrance to further investments in the sector as the disposition of the properties would take forever," the RBAP said.

"We are asking the chief executive to implement the law as amended so we can reduce our bad debts," Lim said during an RBAP forum held at the Manila Hotel.

The rural banking system’s NPLs dropped from 21 percent in 1999 to 18 percent last year, and rural banks hope to reduce this further to at least 16 percent this year.

The RBAP said that with the legal framework in place, they can easily reduce by half the sector’s huge NPLs. Foreclosed properties due to loan defaults comprise over 70 percent of their NPLs.

Meanwhile, Lim admitted that already seven small rural banks have closed due to the huge loan defaults as well as their inability to meet the minimum capitalization requirements set by the Bangko Sentral ng Pilipinas (BSP).

While the seven may be an insignificant number compared to the 200 rural banks in the country, RBAP officials said that these could be a warning for the industry.

"We are not asking government to do anything extraordinary. We are just asking them to implement the law and make the legal framework for the amendments made in 1995," RBAP said.