The Bangko Sentral ng Pilipinas reported that universal and commercial banks (U/KBs) continue to reflect strength in asset quality in their balance sheets.
The non-performing loan (NPL) ratio as of end-October 2012 for U/KBs is at 2.00 percent, reflecting a nominal improvement from the earlier month’s 2.05 percent. The latest figures continue the general decline in the NPL ratio that has been observed over the past few years.
The BSP notes that the improvement in the NPL ratio has been achieved through a combination of a decline in the amount of NPL and the continuing rise in the total loan portfolio. This is of particular significance given the current market environment where benchmark interest rates continue to remain low.
U/KBs’ non-performing loans of Php 69.12 billion in October is 1.17 percent lower than the Php 69.94 billion registered a month earlier. The industry’s total loans, on the other hand, increased by 1.43 percent from Php 3.410 to Php 3.459 trillion during the same period.
The BSP likewise welcomes that banks continue to take an active position in the area of setting up loan loss reserves. The NPL coverage ratio of U/KBs stood at 138.73 percent in October. The high NPL coverage ratio taken together with the decline in NPL ratio provides a strong indication that U/KBs continue to take proactive steps in ensuring the strength of its loan portfolio.
From a policy perspective, the BSP continues to monitor the asset quality of banks’ loan portfolio. Credit risks account for roughly 85 percent of the risk-weighted assets of the banking industry.
For this reason, credit standards remain a high policy priority. The soundness of the banks’ loan portfolio is a key element in maintaining Financial Stability, and thus, the strong performance of the NPL ratio takes on added policy relevance.