Banks' NPL ratio reaches 3.74% in May

MANILA, Philippines - The non-performing loan (NPL) ratio of universal and commercial banks rose slightly to 3.74 percent in May from 3.65 percent in April but remained well below the 4.17 percent ratio over the same month in 2008, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.

The BSP reported that as of end-May 2009, the total NPLs of universal and commercial banks reached P90.64 billion while the total loan portfolio of banks went up 1.88 percent to P2.42 trillion.

Net of interbank loans (IBL), however, the BSP said the NPL ratio rose much faster to 4.26 percent from 4.11 percent in April although this was an annual improvement from the 4.98 percent ratio in May last year.

The BSP reported that the proportion of real and other properties acquired (ROPA) to gross assets (GA) improved to 2.7 percent from 2.78 in April and 3.15 percent last year.

BSP Governor Amando M. Tetangco Jr. told reporters that a slight increase in non-performing loans and non-performing assets was to be expected but said the asset quality of the banking system would remain sturdy.

“We will have to keep a close watch on the asset quality of banks to watch out for signs of stress,” Tetangco said. “But if there is an increase in bad assets, that’s only to be expected under the circumstances.”

The banking sector is expected to hit some difficult times as the country plowed deeper into the global financial crisis and the resulting widespread recession in the major trading economies around the world.

“Given what is happening abroad you cannot discount that there can be a slight uptick in NPL in the near term,” Tetangco said, “This is especially true when the effects of the recession in major economies really and truly starts to affect us.”

But Tetangco said the BSP considered this to be temporary and if it results in an increase in bad assets, the increase would be “slight and manageable.”

“We don’t foresee a substantial increase in bad assets,” Tetangco said.

More importantly, Tetangco said Philippine banks have already tightened their credit standards precisely to ensure that they would not end up accumulating bad loans.

“They are much more careful now and this is just the prudent thing to do when things are this uncertain,” Tetangco said.