Declining bad loans have finally brought the banking industry’s health indicators back to pre-1997 levels, with non-performing loans (NPLs) falling to only 3.98 percent of total loans.
The Bangko Sentral ng Pilipinas (BSP) said that as of end-July, the NPLs of universal and commercial banks (U/KBs) dropped to P92.53 billion even as their total loan portfolio contracted to P2.326 trillion.
The BSP attributed the decline to the reduction in inter-bank loans and reverse-repurchase transactions during the month.
Net of inter-bank lending, the BSP said the NPL ratio of UKBs fell to 4.56 percent compared with 6.33 percent last year, due to the decline in NPLs that accompanied the slight increase in the loan portfolio to P2.028 trillion.
With huge losses expected from the collapse of the biggest financial institutions in the US, the banking sector was expected to keep their balance sheets largely stable with bad loans going down steadily due to a combination of conservative lending strategy and progress in getting rid of bad loans.
The BSP also revealed that the real and other properties acquired (ROPA) went up by 1.15 percent to P147.26 billion which contributed to the increase in non-performing assets (NPAs) to P239.78 billion.
The BSP said banks have so far been successful at cleaning up their portfolio of distressed assets.
In terms of provisioning for bad loans, the BSP said the industry’s NPL coverage ratio strengthened to 97.86 percent from 96.60 percent at the end of June because of the reduction in loan loss reserves which was outpaced by the larger decline in NPLs.
In contrast, the NPA coverage ratio narrowed to 48.40 percent from June’s 48.61 percent as the decline in NPA reserves came with the hike in NPAs.
Nevertheless, the BSP said the July NPL and NPA coverage were substantially higher than year ago ratios of 85.29 percent and 40.30 percent, respectively.
Meanwhile, the BSP reported that the industry’s exposure in the real estate sector expanded in the first semester, totalling P213.2 billion, or 5.2 percent higher than the P202.6 billion recorded in the previous quarter and 11.4 percent more than last year’s P191.4 billion.
The BSP said the increase in total exposure came from the growth in real estate loans which reached P12.5 billion at the end of June, offsetting the decline in banks’ investments in securities issued by real estate companies.
The BSP said UKBs granted about P11.8 billion worth of loans for the acquisition, construction and improvement of residential units for individual homeowners.
From last quarter and from a year ago, the BSP said the share of commercial RELs to total RELs was on a downtrend from 75.1 percent and 81.3 percent, respectively.
On the other hand, the share of residential RELs to total RELs moved up over the same period from 24.9 percent and 18.7 percent.
Non-performing RELs, however, rose by 2.7 percent to P15.1 billion from previous quarter’s P14.7 billion. But because the growth in RELs was faster, the BSP said the ratio of non-performing RELs to total RELs dropped to 7.3 percent from the previous quarter’s 7.6 percent.