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Update on Commercial Banks' NPLs


The ratio of non-performing loans of Philippine commercial banks increased to 15.26 percent of total loan portfolio at end-July from 14.65 percent in June, but even at this level the NPL ratio was still considerably lower than those in other crisis-hit countries like Thailand and Indonesia. 

Based on the reports received by the Bangko Sentral ng Pilipinas, the NPL ratio levels in Thailand and Indonesia were at 35.6 percent and 69 percent, respectively. 

The higher Philippine NPL level in July may have reflected the impact of stricter loan restructuring guidelines under BSP Circular 246 that took effect on June 1, 2000.  Under the new guidelines, banks can no longer conceal non-performing loans through restructuring to make these appear to be current.  A track record of timely payment of principal and/or interest has to be established. 

Consistent with this, gross restructured loans (RL) declined by 0.6 percent from P82.2 billion in June to P81.7 billion in July.  The volume of NPL’s rose by P10.3 billion or 5.6 percent to P232.8 billion in July from P220.4 billion in June. 

Tracking the increase in NPL, the industry’s loan loss reserves (LLRs) inched up to P101.7 billion in July from P101.2 billion the previous month.  However, in spite of the increase in LLRs, NPL coverage ratio (LLRs divided by NPLs) still declined to 43.7 percent from 45.9 percent the month before.  Nevertheless, the July LLR level remained steady at 6.7 percent of TLP.   

The combined hike of 5.1 percent in NPLs and holdings of real and other property owned/acquired (ROPOA) and the simultaneous contraction of total assets by 0.2 percent weighed down on the industry’s overall asset quality, causing the non-performing asset (NPA) ratio (NPL plus net ROPOA to total assets) to deteriorate to 12.7 percent from previous month’s 12.0 percent.  ROPOA holdings increased to P113.6 billion this month from P109.5 billion a month ago, raising its share of total assets to 4.2 percent compared to 4.0 percent a month ago.

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