Further consolidations, downgrades seen

Industry leaders of the thrift and savings banking sector has sadly forecast further consolidation and reclassification of the sector as high levels of non-performing loans (NPLs), poor economic activity and regulatory requirements continue to weigh heavily on the nearly 90 industry players.

Planters Bank president and chief operating officer Ma. Flordelis F. Aguenza admitted that most of the banks either commercial banks (KBs), thrift banks (TBs) and rural banks (RBs) suffered from the 1997 Asian financial crisis.

"It was so deep and pervasive, we expected that in three years Planters Bank and most of the banks would be out of it. We are now on our sixth year," Aguenza lamented.

But due to the lack of funds from both the private and government sector, the NPLs remained unresolved.

In contrast, the country‚s neighbors including Thailand, Korea, Malaysia, and Indonesia got direct assistance from their respective regulators. But the Philippine government did not have the money to salvage the situation.

Even with the special purpose vehicle (SPV) law, there have been not successful results. There were attempts like Lehmans with Metrobank, and another consortium with BPI but that too failed.

"The law has a lot of flaws, which made it unattractive like the huge discounts for asset management companies. The banks will take too much of a hit," the bank president added.

Luzon Development Bank (LDB) president Tom V. Clemente Jr. admitted that most of the thrift and private development banks has taken matters into their own hands without the benefit of the SPV law.

"Most of the thrift banks are doing it on our own. What we have done was develop innovative approached to riding ourselves of the bad assets," Clemente, who is also the president of the Chamber of Thrift Banks (CTB), said.

Thrift banks in general have been successful in managing their NPLs, bad assets. Likewise, the market has demonstrated a renewed interest in parting with their money and placing it in property investments and its ROPOA (real and other properties owned or acquired).

PSBank president Pascual M.Garcia III predicts that there would be downgrading or reclassification of thrift banks into the rural banking sector as more banks find it hard to maintain the capitalization requirements of the regulators while the economy remain at the doldrums.

"The prospects of new investments entering the thrift banking industry are bleak due to the poor or negative perception of the foreign and domestic investors," Garcia added.

Garcia and Clemente saw possible mergers in the horizon among big players and between major to minor players this year although a huge emphasis may also be in the acquisition of branch licenses over total acquisitions.

"But most thrift banks would likely increase investments and attention to the small and mecium enterprises (SME) as the sector has been stubborn and relentless in its upward growth," the bank chief executives agreed.

In the first six months of 2003, the NPL ratio of the industry went up to 13 percent from last month’s 12.82 percent expanding by 2.04 percent to P19.54 billion. The NPL ratio rose to 13.50 percent net of interbank loans (IBL).

The non-performing assets (NPA) ratio rose to 16.31 percent from 16.16 percent a month ago to P43.08 billion.

This month’s NPL and NPA ratios were nonetheless lower compared to the previous year’s NPL and NPA ratios of 13.22 percent and 17.84 percent, respectively.

The NPL coverage ratio [loan loss reserves or LLR to NPL] narrowed down to 37.71 percent to P7.37 billion but outpaced by the higher increase in NPL. Moreover, NPA coverage ratio [LLR + provisions for ROPOA to NPA] receded to 19.56 percent from 19.72 percent last month.

Gross restructured loans (RL) ratio slightly slid to 2.31 percent from 2.32 percent last month as RLs dropped to P3.49 billion.

ROPOA to gross assets was maintained at 9.72 percent while gross assets grew by a mere 0.38 percent to P264.17 billion.