Commercial banks’ increased lending reflects high liquidity, says BSP

The Bangko Sentral ng Pilipinas (BSP) said yesterday that the increase in commercial banks’ lending was an indication of how liquid banks have been in the last few months as interbank lending dropped by almost P10 billion.

BSP Deputy Governor Alberto Reyes said the actual volume of non-performing loans reached P247.46 billion in January from P245.1 billion in December 2002.

According to Reyes, the final figures for NPLs in January indicated that the ratio of bad loans to the total loan portfolio actually increased from 14.95 percent in December and 18.3 percent in January last year to 15.12 percent in January this year.

However, the BSP said there was a P2.6 billion decline in the total loan portfolio of banks to P1.636 trillion while interbank loans dropped by P9.66 billion to P199.4 billion from December’s P209.05 billion. "Yearend statements and reports are usually high and tend to show better performance," Reyes said, referring to the usual window dressing that banks do at the end of the year. Also, Reyes said actual interbank loans were lower, and this could mean that the underlying lending of banks improved in January." It could also mean that they are liquid so only a few of them availed of interbank loans," he said.

The BSP, however, is still refining the NPL figure and said there would be "slight revisions" once the Monetary Board approves the adjustments.

The adjustments are expected to tighten the NPL ratio by "a few percentage points." The BSP said banks have more or less exhausted the benefits of BSP’s "virtual write-off" rule that allowed banks to remove some bad loans from their portfolio as long as they were fully-provisioned.

The NPL ratio is a key indicator of the health of the banking sector — the higher the percentage, the deeper they are in trouble. Aside from actually trying to pare down their bad loans, banks also had the option of increasing the total loan portfolio, but banks have not been too eager to do this.

The BSP reported that in January, bank lending activity continued to improve, led primarily by the growth in the following sectors: agriculture, fisheries and forestry (27.7 percent); community, social and personal services (14.5 percent); and manufacturing (7.7 percent) which altogether comprise 45.3 percent of total outstanding loans of commercial banks.

According to BSP Acting Governor Amando Tetangco, the upturn in bank lending to the manufacturing sector in January also marked the second consecutive month of increase after 17 months of year-on-year contractions.

"The implementation of the Special Purpose Vehicle Act of 2002 on Jan. 10, 2002 is expected to further invigorate bank lending activity as it would facilitate speedier disposal of the banking system’s non-performing assets," Tetangco said.