Banks slow in selling bad assets

After getting a two-year extension of the incentives on the sale of bad assets, data from the Bangko Sentral ng Pilipinas (BSP) showed that the banking sector was still as sluggish as ever to rid themselves of non-performing assets (NPAs).

The Bangko Sentral ng Pilipinas (BSP) estimated early last year that at least P50 billion worth of bad assets could be unloaded in 2006 especially after Congress granted an extension of Special Purpose Vehicles Act (SPVA) which gave banks various incentives to encourage them to unload their bad assets.

The 2006 estimate was half of the total target of P100 billion worth of non performing assets that the BSP said would be unloaded under the SPVA.

According to the BSP, however, only about P21.85 billion worth of bad assets were actually applied for incentives under the SPVA in 2006.

BSP Governor Amando M. Tetangco Jr. said banks intend to sell bad assets amounting to P62.7 billion. If these assets were actually brought out for sale, total SPVA transactions could amount to P85 billion, representing 85 percent of the total.

According to Tetangco, the BSP has approved various incentives for the sale of about P48.2 million worth of individual non-performing assets with five pending applications for incentives covering assets worth P21.8 billion.

The BSP had conducted a survey of banks where they were asked exactly how much NPAs they intend to unload under the SPVA this year. These were assets that have been earmarked for unloading though not applied for incentives.

According to BSP Deputy Governor Nestor Espenilla Jr., 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."

Espenilla said that since the industry was not homogenous, the pace of compliance could not be expected to be uniform. "Some banks have no problem complying, others have to catch up," he said.