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NPL Ratio of Universal and Commercial Banks Continue to Fall


The Bangko Sentral ng Pilipinas (BSP) announced today that non-performing loans (NPL) among universal and commercial banks continued to fall as of end-June 2008.

The BSP said that the ratio of NPLs to the total loan portfolio is at 3.99%, lower than the 4.17% NPL ratio registered in May and the 5.21% in June of last year.  The latest NPL ratio bodes well for the industry as it is the lowest since the onset of the 1997 Asian financial crisis.

Indications of improvement are consistently evident in the numbers. Past Due loans fell by Php1 billion while those classified as non-performing declined by Php2.05 billion. Real and Other Properties Acquired (ROPA) fell by Php1.36 billion over the one month period leading to an overall decline in non-performing assets (NPAs) by Php3.42 billion.

A loan is deemed past due one day after a missed quarterly or semestral installment payment obligation and is classified as non-performing if the missed installment payment remains unsettled 30 days after. ROPA include foreclosed assets and those acquired via dacion en pago to settle, in part or in full, an outstanding unpaid obligation.

The BSP highlighted the positive development by noting that universal and commercial banks are the main providers of credit facilities in the country both for retail and commercial needs. As of end-June 2008, universal and commercial banks report an outstanding loan portfolio of Php2,355.2 billion.

What makes the lower NPL ratio quite meaningful is the fact that it was not limited to a reduction in accounts experiencing payment difficulties. The numbers also show that the decline in the ratio was augmented by the expansion in the total loan portfolio by almost Php54 billion and a corresponding Php2.88 billion decline in restructured loans. Moving forward, this expansion in the loan portfolio is just as critical since it makes credit available for productive economic endeavors.

Loan loss reserves amounted to Php90.79 billion in June while ROPA reserves stood at Php25.67 billion. The combined reserve of Php116.46 billion is slightly lower than the May level but this is more than offset by the significant decreases in both non-performing loans and non-performing assets. As a result, the coverage ratios for NPLs and NPAs actually increased by 182 basis points and 64 basis points respectively from their end-May values.

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