Despite its clean-up effort, the Bangko Sentral ng Pilipinas (BSP) said the health of the Philippine banking sector is still comparatively weak by regional standards.
The BSP reported over the weekend that the proportion of the banking industry’s bad assets to its total loan portfolio was dropping to pre-1997 levels when non-performing loans and non-performing assets skyrocketed as a result of the Asian financial crisis.
However, the BSP said the efforts to clean up its portfolio still did little to significantly ease the burden of NPLs and NPA, even with the incentives under the Special Purpose Vehicles Act.
“While the foregoing asset disposition without any form of government bailout has been noteworthy, banks remained burdened with a large stock of non-performing assets,” the BSP said.
As of end-June 2007, the BSP said the total NPA level of the entire banking industry amounted to P326.1 billion, about 62.7 percent of the P520 billion recorded as of end-June 2002 when the SPVA was first implemented.
“Consequently, distressed assets ratio (broadest measure of asset quality) lingered, albeit on a steady downtrend, in a double-digit level of 15.1 percent,” the BSP reported, adding that this was “quite high based on ASEAN standard.”
The BSP had expected banks to unload at least P200 billion of its NPAs under the SPVA but at the end of the first semester, regulators reported that the sector has only unloaded about P32 billion worth of bad assets under the extended SPVA.
This year’s total so far brought the total of bad assets unloaded through SPV-related transactions to P128.7 billion. This was equivalent to 24.7 percent of the total NPAs eligible for incentives under the SPVA.
On the other hand, the BSP said the banking system’s solvency ratio remained well above the BSP regulatory requirement of 10 percent and international standard of eight percent on account of increased capital raising activities of banks as part of their overall preparations for Basel II.
The BSP said core earnings of the industry remained strong as net income after tax (NIAT) for the first half of 2007 rose by 17.6 percent to P32.8 billion from 14.6 percent same period last year.
The BSP said that at present, there were 38 operating universal and commercial banks in the country, with 4,259 branches. The industry also included 83 thrift banks with 1,250 branches, and 737 rural and cooperative banks with 1,371 branches at end-June 2007.
The physical network of the industry, according to the BSP, actually contracted as a result of several cases of bank mergers and closures in the first half of the year.
According to the BSP, the overall bank structure shrank from 871 to 858 banks despite the minimal increase in the number of head offices, branches, and other offices of the banking system from 7,693 last year to 7,738.