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KB NPLS as of October 2002 Hits Five-Month Low

01.10.2003

The Non-Performing Loans (NPL) ratio of commercial banks as of month-end October 2002 marginally improved by 0.08 percentage points to 16.36 percent from last month’s amended ratio of 16.44 percent and by 2.45 percentage points from 18.81 percent a year ago. Without the re-definition of the NPL computation as embodied in the BSP Circular No. 351, the NPL ratio would have been 16.88 percent, still an improvement by 0.14 percentage point from last month’s comparable ratio of 17.02 percent.

NPL level fell by 0.48 percent or by P1.27 billion to P265.57 billion from P266.84 billion last month. Underlying the decline was the re-definition which reduced NPL volume by P10.24 billion this month. Otherwise, NPL levels under the previous definition would have been P275.81 billion, still lower by 0.84 percent or by P2.33 billion from last month’s P278.14 billion.

Apart from the impact of BSP Circular No. 351, the reduction in NPL level was achieved through intensified collection activities and restructuring proceedings. Past Due Loans (PDL) declined by P3.59 billion to P263.69 billion from P267.28 billion a month ago, whereas Restructured Loans (RL) slightly increased by 1.15 percent, or P1.43 billion, to P126.07 billion.  Measures taken to liquefy hard assets resulted to a decline in Real and Other Properties Owned or Acquired (ROPOA) gross from last month by 0.39 percent, or P0.69 billion, to P176.66 billion.

Regular lending activities were sustained as Total Loan Portfolio (TLP), net of Interbank Loans (IBL) grew by 0.53 percent to P1,424.58 billion from P1,417.00 billion a month ago. IBL, on the other hand, contracted by 3.49 percent, or P7.20 billion, to P199.10 billion this month.

The NPL coverage ratio (Loan Loss Reserves to NPLs) further improved to 48.68 percent as against last month’s ratio of 48.08 percent mainly due to the 0.75 percent or P0.97 billion increase in LLRs, from P128.30 billion last month to P129.27 billion this month.

The ratio of gross RLs to TLP increased to 7.76 percent from 7.68 percent last month, as gross RLs were up by 1.15 percent to P126.07 billion this month, even as TLP increased by 0.02 percent to P1,623.68 billion from P1,623.30 billion last month. Past due ratio of RLs slightly deteriorated to 39.81 percent from the previous month’s 39.80 percent. However, this month’s past due ratio of 39.81 percent was an improvement from the 44.53 percent in the comparable month a year ago.

The ratio of ROPOA to Gross Assets (GA) was at 5.55 percent, down by a mere 0.02 percentage point from the previous month’s 5.57 percent. The decline in the holdings of ROPOA (gross) by 0.39 percent to P176.66 billion from last month’s P177.35 billion outmatched the 0.04 percent drop in GA to P3,183.89 billion from P3,182.56 billion a month ago.

Improvement in the overall asset quality was sustained with the drop in Non-Performing Assets (NPA) by 0.44 percent to P442.23 billion which induced a 0.07 percentage point reduction in the NPA ratio from 13.96 percent to 13.89 percent this month. This ratio would have been 14.17 percent or higher by 0.28 percentage point without the new definition of NPL.

NPA coverage ratio (NPA valuation reserves to NPAs) increased from 30.93 percent last month to 31.33 percent this month due to the upward movement in the NPA reserves (LLRs plus provision for ROPOA) by 0.86 percent to P138.57 billion from P137.38 billion last month. The NPA coverage ratio under the old definition showed a higher ratio of 32.89 percent.

Total past due loans (past due plus items in litigation) of the industry significantly declined by 1.34 percent, or by P3.59 billion, from last month’s level of P267.80 billion to P263.69 billion. Thus, coupled with the 0.02 percent rise in TLP, past due ratio (total past due over TLP) improved by 0.22 percentage point to 16.24 percent against last month’s 16.47 percent.

Further improvement is expected in year 2003 with the signing into law of the Special Purpose Vehicle (SPV) Act. The SPV Act provides the regulatory framework for the creation of SPVs, or firms that can acquire the local banking sector’s non-performing assets.

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