WB laments RP banks’ failure to dispose of NPAs

Despite the passage of the special purpose vehicle (SPV) law in early 2003, the anticipated disposal of the non-performing assets (NPAs) of the country’s banking system was unsuccessful, according to the World Bank.

"The enactment of the special purpose vehicle (SPV) law in January 2003 has not speeded up resolution of the NPAs, as anticipated," the World Bank said in its Global Development Finance 2004.

No major transactions have taken place even though a few SPVs have been approved and some others are under discussion.

"Significant differences between what the price sellers (banks) want and the price the buyers (investors) are willing to pay, continue to be the primary hindrance to deal making."

Prior to the enactment of the SPV Law, a number of asset management companies (AMCs) openly expressed their interest in acquiring the bad assets of the country’s commercial banking system. Lehman Brothers held talks with the Metropolitan Bank and Trust Co. (Metrobank) but broke discussion.

Another group of investors, with assistance of the International Finance Corp. (IFC), formed a consortium to buy the bad assets of the Bank of the Philippine Islands (BPI). And once more, they failed to come to an agreement mainly in prices and discounts.

The IFC is the private investment arm of the World Bank. It has made significant acquisitions in various sectors of Philippine business including commercial and private development banks.

Meanwhile, the amendments to the Bangko Sentral ng Pilipinas (BSP) and Philippine Insurance Deposit Corp. (PDIC) charters were delayed as Congress became preoccupied with preparations for the May 10 national elections. Likewise, a number of bills marked as priority failed to get the nod of election-crazed solons.

The World Bank said that the PDIC charter amendments, though approved by the related working committees of both chambers of Congress, could not be ratified for the President’s signing before the adjournment of the last session before the general election.

"The enactment of these measures is critical for the development of a legal and regulatory framework conducive for the development of a strong banking sector," it said.

The PDIC amendments among others raised the minimum deposit insurance coverage from P100,000 to P250,000. The proposed amount is said to be long overdue.

Actually, Congress had already approved both versions of the two chambers and passed the bicameral committee. However, it was not ratified and will have to await the resumption of Congress for ratification and eventual signing into law.

Last year‚ net interest margins of Philippine commercial banks were four percent, while the non-performing loans (NPL) ratio declined in the last quarter of 2003 and stood at 14.05, with an NPL coverage of 52 percent.

The World Bank clarified that the decline was due to growth in total loan portfolio rather than actual reduction in NPLs. It remained practically unchanged over the last quarter and stood at P245 billion as of December 2003.

As of end September 2003, total loan portfolio (gross, inclusive of interbank loans) of the Philippine banking system stood at P1.93-trillion versus the P1.83-trillion in the same period in 2002. Past due loans as of September 2003 was recorded at P301.997 billion versus the P310.124 billion in the same period in 2002.

Meanwhile, net private capital flows to developing countries as a whole rebounded to $200 billion in 2003, up from $155 billion in 2002, but most of the increase is concentrated in just a few relatively better-off countries, while official development assistance to poor nations increased only marginally, the annual World Bank report said.

"The rebound in capital flows to some of the larger countries is encouraging, and reflects an improving global economic picture," a World Bank economist said. "But we are concerned about official aid flows, which are of critical importance to the poorest countries. They have increased only slightly, and last year remained well below the levels required to achieve the Millennium Development Goals (MDGs)."