Banks' bad loans down to 3.73%

MANILA, Philippines - Banks continued to pare down their bad loans, bringing down the proportion of non-performing loans (NPLs) to their total loan portfolio below the pre-1997 level, putting universal and commercial banks in a position of strength.

The Bangko Sentral ng Pilipinas (BSP) reported over the weekend that the NPLs of universal and commercial banks (U/KBs) fell to 3.73 percent of their total loan portfolio.

BSP officer-in-charge and Deputy Governor Armando L. Suratos revealed that the NPL ratio in February was lower than the 3.82 percent in January.

“There’s a 1.18-percent drop in NPLs and accompanied by 1.21-percent expansion in total loan portfolio (TLP),” Suratos said.

According to Suratos said the total NPLs of the industry was recorded at P89.76 billion in February, lower than the P90.84-billion level recorded in January this year.

The decline in NPLs, however, could be a double-edged knife as central bank officials expressed concern that banks have begun to tighten their credit standards and this could limit the effectiveness of monetary policy easing.

The BSP said lending standards have tightened in recent months as banks feared the greater tendency of borrowers to default on their loans.

The BSP conducted a survey of loan officers over the past three months and the results indicated that majority of banks showed moderately tighter lending standards in terms of collateral requirements and credit screening.

The BSP said credit tightening was a natural reaction of banks in times of uncertainty since they wanted to be amply protected from the possibility of default which would ultimately hurt their balance sheets.

In 1997 when Asia was hit by the financial crisis, the Philippine banking system suffered significant losses from loan defaults that led to a dramatic accumulation of bad loans.

The non-performing loans ratio of the industry peaked at 20 percent in 2000 as banks reeled from the impact of the 1997 Asian financial crisis. The BSP said banks reacted to the loss of confidence by tightening up, it also limited the credit channel that transmitted the BSP’s monetary policy down to the real sector.

BSP has made several moves, most of them aggressively by allowing liquidity to flow into the system from cutting policy rates by 100 points to liberalizing access to its peso repurchase facility as well as opening a dollar repurchase facility.

But the BSP said these measures needed to be complemented by an equally aggressive stimulus program of the National Government.

The Arroyo administration is planning to spend P330 billion on is economic stimulus package this year but there would be no incremental spending on top of the budget that was approved before the onset of the global crisis.

Finance officials said the government would allow the budget deficit to increase to 2.2 percent of gross domestic product but not as a result of bigger spending but because of the slowdown in revenue collection as corporate incomes decline this year.