Banks’ bad loans ratio drops to 1.87%

MANILA, Philippines - The proportion of soured loans to total bank credit dropped to a historic low last year as big lenders extended more money and more borrowings were paid, the Bangko Sentral ng Pilipinas (BSP) said.

The non-performing loan (NPL) ratio of universal and commercial banks dipped to 1.87 percent last year, according to the central bank’s Status Report on the Philippine Financial System for the second half of 2012.

This was also significantly down from the previous year’s 2.23 percent.

NPL are loans that remained unpaid 30 days after the due date. The BSP keeps a tight watch on bad credit as excessive accumulation of such could put a strain on banks’ balance sheets.

This, in effect, could reduce their lending capacities, necessary to provide credit to a growing economy.

“The banking community continued to reflect strong loan quality,” the central bank said in the report.

According to the BSP data, the NPL ratio dipped due to a combination of an increase in total loans and a decline in unpaid ones.

Big lenders extended a total P3.618 trillion in credit last year, up 12.29 percent from the previous year’s P3.222 trillion.

Of these, only P67.5 billion were considered NPL, down 6.12 percent from P71.9 billion in 2011, figures showed.

Including foreclosed assets, the banks’ non-performing assets (NPA) ratio likewise declined to 2.35 percent from 2.76 percent a year ago. This was due to a 6.2-percent decline in NPA during the period.

While the bad loans level remains manageable, lenders continue to accumulate enough buffer funds to cover for their potential losses, the BSP said.

The NPL coverage ratio – which measures the banks’ capacity to absorb loan losses – improved to 141.25 percent last year from 126.36 percent previously.

On the other hand, NPA coverage ratio similarly increased to 70.89 percent from 64.44 percent in 2011.