Banks to sell P60B worth of bad assets this year

Banks are expected to unload over P60 billion worth of non-performing assets this year as the Bangko Sentral ng Pilipinas (BSP) upgraded its previous estimates of bad assets that would qualify for incentives under the Special Purpose Vehicles Act (SPVA).

The BSP said yesterday that based on a recent survey of banks, the amount of bad assets that could be unloaded this year was P10 billion more than the previous estimate of P50 billion.

BSP Deputy Governor Ernesto Espenilla Jr. told reporters that the total volume of non-performing assets (NPAs) indicated by the survey covered assets that banks intended to apply for incentives as well as transactions that are already in the pipeline being evaluated by the BSP.

Espenilla said the BSP asked banks exactly how much NPAs they intended to unload under the SPVA this year and the actual number was higher than the original estimate.

"I wouldn’t call them transactions in the pipeline because some of them have not actually been negotiated, these are assets that have been earmarked for unloading," Espenilla qualified.

On the other hand, Espenilla said the overall total that the BSP expected to be unloaded under the extended SPVA was still P100 billion.

Despite criticisms, however, Espenilla said the BSP was more than satisfied with the progress being made by banks in cleaning up their loan portfolio.

According to Espenilla, it was understandable for Philippine banks to take longer to recover from the 1997 Asian crisis especially since, unlike other countries, the government did not take a direct hand in rescuing the banking industry.

"Our government does not have the resources to take a direct bail-out of banks, so our banks have had to do this all on their own, often from internally-generated funds," Espenilla said.

According to Espenilla, banks have had to contend with the capital impact of cleaning up the deadwood from their loan portfolio while at the same time building up capital to deal with the impact of complying with the provisions of the Basel II Convention.

"We have to appreciate the magnitude of the effort that the industry has been exerting," Espenilla said. "They have undertaken an overall clean-up and increase in provisioning, building up capital from internally-generated funds," he said. "The overall impact has been to strengthen their balance sheet but it also had the effect of narrowing down their profit margin in the meantime."