Bad loans ratio eases to record low in June

MANILA, Philippines - Soured loans of major universal and commercial banks in the Philippines plunged to a record low in end June as financial institutions continued to tighten their lending standards, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.

The non-performing loans (NPLs) ratio of universal and commercial banks eased to 1.80 percent in June from 1.84 percent in May.

This erased the previous record low of 1.82 percent recorded in November last year.

NPLs are obligations that remain unpaid for at least 30 days after the due date. The NPL ratio pertain to the amount of bad loans over the total loan portfolio.

Despite the new record low, universal and commercial banks continued to build up their loan loss reserves to 2.54 percent in June which is equivalent to 141.67 percent of all bad loans.

Provisioning for bad loans is a prudential measure meant to mitigate against any potential credit losses. 

The bad loans ratio of big banks declined to 1.81 percent in end-2014 from 2.13 percent in end-2013 as the expansion in their total loan portfolio outpaced the growth in their soured loans.

BSP data showed banks’ total loan portfolio went up 20 percent to P5.118 trillion from P4.257 trillion while their NPLs increased two percent to P92.61 billion from P90.509 billion.

Their loan loss reserves reached 143.12 percent of their gross NPLs in 2014, slightly lower than the 144.12 percent in 2013.

The BSP monitors the soured loans of banks as part of its efforts in promoting high credit standards, essential to keeping the domestic financial system stable.

The central bank earlier reported credit standards for loans to households and enterprises by banks were unchanged in the second quarter after a net tightening in the first quarter.

In its latest Senior Loan Officers Survey, the BSP said the diffusion index (DI) approach pointed to basically unchanged overall credit standards for both enterprises and households in the second quarter of the year.

The survey showed 93.5 percent of the respondent banks said credit standards for loans remained basically unchanged in the second quarter.

On the other hand, 3.2 percent of the respondents reported that credit standards somewhat tightened, while 3.2 percent of the responding banks also reported that their credit standards for loans have eased somewhat.

This was the 25th consecutive quarter since the second quarter of 2009 that the majority of banks reported broadly unchanged credit standards.

Respondent banks attributed their unchanged credit standards to their steady outlook on the domestic economy as well as specific industries such as wholesale and retail trade, manufacturing, and utilities, among others.