Banks’ NPL ratio improves as total lending picks up

The non-performing loan (NPL) ratio or bad loans ratio of the universal and commercial banking industry improved last January as the industry’s total loan portfolio increased and non-performing loans declined.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that as of end-January 2005, the industry’s NPL ratio improved to 12.54 percent from 12.72 percent in December and 14.47 percent a year earlier.

Net of interbank loans, the BSP said the NPL ratio actually went up to 14.97 percent from 14.84 percent the previous month but this was still lower than 17.1 percent the previous year.

The drop in the NPL ratio of universal and commercial banks stemmed from the four percent growth in commercial bank lending although the BSP noted a steady monthly drop as industries slowed down on borrowings despite a slight pick-up in the manufacturing sector.

The BSP reported earlier that the loans outstanding of commercial banks (KBs) grew by four percent year-on-year to P1.512 trillion as of end-January 2005.

On a month-on-month basis, however, total KB loans continued the decline observed in the previous month, posting a 0.9-percent drop in January.

The BSP said the ratio of restructured loans to the total loan portfolio fell to 6.84 percent from 6.87 percent in December as the industry’s loan portfolio grew faster than restructured loans.

The BSP said non-performing restructured loans also rose by two percent, bringing the non-performing restructured loans to total restructured loans ratio up to 48.08 percent.

According to the BSP, the industry’s non-performing assets (NPA) ratio was also better, dropping to 11.17 percent compared to 11.41 percent the previous month and 13.09 percent a year ago.

"This happened because of the 0.2-percent decline in NPAs and the 2.1 percent rise in gross assets," the BSP said in its report.

On the other hand, January’s NPL coverage ratio and the NPA coverage ratio also strengthened to 60.93 percent against 53.14 percent last year and 35.87 percent against last year’s 32.72 percent, respectively.

The BSP said the decline resulted from higher loan loss reserves and NPA reserves as well as lower NPLs and NPAs.

The growth in commercial bank lending continued to be driven mainly by lending to the manufacturing sector, which saw a 16.4 percent year-on-year rise in January and accounted for about 28 percent of total KB loans, the BSP said.

In contrast, the BSP said KB loans to the mining/quarrying and construction sectors recorded sharp declines during the month, while loans to the other sectors showed marginal increases.

BSP Governor Rafael Buenaventura said he expects KB lending to strengthen further in the near term but overall bank lending activity would remain moderate.

Buenaventura said this would be due in part to the still sizeable stock of non-performing loans among banks despite recent improvements.

"Credit continues to be an important channel of monetary policy in the Philippines, and thus the BSP remains steadfast in its efforts to clean banks’ balance sheets to improve the lending activity of banks," Buenaventura said.

In 2004, commercial bank lending went up slightly, growing by 2.6 percent year-on-year to P1.526 trillion as of end-December.