Bank lending rises to P1.43T in Aug

Lending by the country’s commercial banks went up by 3.8 percent to P1.43 trillion in August from a year ago level, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

This is the 12th consecutive month since September last year that bank lending has been on a growth trend.

BSP Deputy Governor Alberto Reyes said the year-on-year growth was supported by the steady rise of loan demand from both the public and private sectors.

"The robustness in consumption spending as well as the gradual pick-up in manufacturing activity have contributed to higher demand for bank financing by firms," Reyes said.

Based on a report from the BSP, the strongest loan growth was recorded in the agriculture, fisheries and forestry sector which expanded by nearly 69 percent during the month in review.

Reyes, however said, the latest growth in lending activity for the agriculture sector was slower compared to the 69.5-percent expansion recorded in July.

The BSP also noted increases in commercial bank lending to community, social and personal services, up 14.4 percent; electricity, gas and water, up 7.7 percent; and wholesale and retail trade, up 1.4 percent.

On a month-on-month basis, bank lending remained virtually flat in August as loan releases were also recorded at P1.43 trillion in July.

Growth of non-performing loans of commercial banks, on the other hand, went down to 14.96 percent in August from 15.38 percent in July as the Special Purpose Vehicle Act (SPVA) was beginning to make an impact in the industry’s overall portfolio quality.

Reyes told reporters that although there was still no massive and system-wide unloading of bad loans, banks have begun in earnest to unload their NPLs to individual buyers.

"At the very least, it is an indication that concrete steps are being taken by banks to dispose of their NPLs," Reyes said. "Of course we would still rather see more decisive steps in this direction but it’s a start."

The BSP’s internal target was to bring down the commercial banking sector’s NPL ratio to 10 percent of their total loan portfolio by 2005, a process that was expected to be accelerated by the SPVA which provided incentives to banks to unload their NPLs to asset Bank lending management companies.

The shifts in the banking sector’s NPL level, however, was met with skepticism by credit ratings agencies who said that the decline in NPL ratio had been due, not to the actual decline in bad loans but to the change in definitions that allowed banks to window-dress their portfolio.

In its most recent report on the Philippine banking industry, Moody’s Investors Service said it did not believe that the recent easing in non-performing loan (NPL) ratios indicated a fundamental improvement in asset quality.

"Instead, the lower numbers are due to definitional changes," said Moody’s analyst John Tham.

Since September 2002, bad loans which are fully provided for have been excluded from the computation of NPL ratios, causing an artificial decline in NPLs.

"In fact, the moderate rise in foreclosed assets and restructured loans – which are reported separately – may imply a short-term weakening in borrowers’ debt-servicing capabilities," Tham said.

On the whole, Tham said the outlook on the Philippine banking system was dim primarily because of the negative outlook on the country’s overall currency ratings which pulled down its expectations on local banks.