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NPL Ratio of Universal and Commercial Banks Lowest in More Than Eight Years

02.19.2007

The universal and commercial banks’ (U/KBs) non-performing loans (NPL) ratio as of end-December 2006 further eased to 6.01 percent from previous month’s 6.90 percent and year ago’s 8.21 percent. This month’s ratio is the lowest in more than eight years following the 6.61 percent ratio posted at end-February 1998.

The 0.89 percentage point month-on-month improvement came on the back of a double-digit decline in NPLs and moderate expansion in total loan portfolio (TLP). The industry’s NPLs settled at P125.12 billion, 10.45 percent lower from P139.72 billion. The cut substantially came from the initial bulk sale of NPLs (P8.53 billion) under the SPV Law extension.  Meanwhile, TLP rose by 2.77 percent to P2,081.06 billion from P2,024.92 billion. 

Net of interbank loans (IBL), the NPL ratio likewise improved by 0.94 percentage point to 7.46 percent from 8.40 percent last month as regular loans grew by 0.85 percent.  Year-on-year, this month’s ratio is also better by 2.57 percentage points than the base figure of 10.03 percent.

For the month, restructured loans (RLs) declined by 8.90 percent to P86.30 billion. Combined with an expanding TLP, the proportion of RLs to TLP declined by 0.52 percentage point to 4.11 percent.  During the period, the share of non-performing RLs to total RLs got better at 45.10 percent from 48.48 percent.

Similarly, real and other properties acquired (ROPA) dropped in December by 3.45 percent to P173.90 billion.  More than half (71.06 percent or P4.42 billion) of the reduction was accounted for by the initial bulk sale of ROPA accounts under the extended SPV Law.  Coupled with moderate growth in gross assets (GAs), the ratio of ROPA to GA moved down to 3.93 percent from last month’s 4.15 percent.

Preceding favorable developments eased the industry’s non-performing assets (NPA) ratio to 6.53 percent from last month’s 7.12 percent.  The 6.54 percent drop in NPAs was complemented by the 1.93 percent expansion in GAs.  This month’s ratio is also 1.84 percentage points better than year ago’s 8.37 percent ratio. 

Meanwhile, the NPL coverage ratio further strengthened to 80.21 percent from previous month’s 78.31 percent and year ago’s 77.49 percent ratio.  For the month, the 10.45 percent reduction in NPLs overtook the 8.26 percent shrinkage in loan loss reserves (LLRs).  As of end-year 2006, LLRs stood at P100.37 billion. 

On the other hand, the NPA coverage ratio tapered to 40.35 percent from last month’s 40.85 percent.  This developed with a faster 7.69 percent fall in NPA reserves to P116.12 billion than the decrease in NPAs.  

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