Banks’ NPL ratio eases in November

Bad loans of commercial banks (KBs) continued to decline in November last year, easing from 16.36 percent in October to 16.27 percent as banks held on to their portfolios in anticipation of the new Special Purpose Asset Vehicle law that would allow them to move their bad loans with various incentives.

Based on a report from the Bangko Sentral ng Pilipinas (BSP), the only significant movement in the banking sector’s NPL was due to the change in the BSP’s definition of bad loans.

In the new reporting regulation of the BSP, KBs were allowed to virtually write off fully-covered bad loans, effectively taking them out of the NPL portfolio and bringing down the total NPL ratio of the banks.

The BSP said the new rule would only allow banks to take certain loans out of their NPL portfolio as long as they have no unbooked valuation reserves and are fully covered with general and specific loan-loss provisions.

The BSP said that this change in accounting procedure explained the P1.65-billion reduction in total NPL of commercial banks from P265.56 billion in October to P263.91 billion in November.

Under the old definition, the BSP said the NPL level would have been P273.99 billion in November, still P1.82 billion lower than the previous month’s P275.81 billion.

The BSP said that apart from the redefinition, there was also an increase in the amount of restructured loans that suggested movement in restructuring and foreclosure proceedings. Restructured loans increased by 1.2 percent to P127.58 billion while real and other properties owned or acquired (ROPOA) assets grew by P860 million to P177.52 billion.

Bank lending net of interbank loans was virtually unchanged at P1.433 trillion in November from P1.424 trillion a month ago.

Interbank loans, on the other hand, contracted by 5.18 percent to P10.32 billion.

Banking sources said the BSP’s decision to allow banks to take out fully-provisioned NPLs from their NPL portfolio was estimated to reduce the NPL ratio of the banking industry by as much as two percentage points, or equivalent to about P46 billion worth of bad loans.