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Universal and Commercial Banks' NPL Ratio at its Lowest in Nearly 8 Years


The universal and commercial banks’ overall asset quality improved during the month of December 2005 led by the favorable cut in the industry’s non-performing loan (NPL) ratio to 8.51 percent from 8.76 percent at end-November 2005.  Compared against previous year’s double-digit 12.72 percent, this month’s NPL ratio was also lower by 4.21 percentage points, bringing the industry’s year-end ratio at its lowest in nearly 8 years. 

The movement in this month’s ratio was a result of the simultaneous 2.7 percent decline in NPLs and 0.2 percent expansion in total loan portfolio (TLP).  As a result of banks’ continued efforts to reduce problem loans, total NPLs went down to P159.81 billion from P164.25 billion at end-November 2005.  TLP on the other hand was reported higher at P1,878.88 billion from P1,874.45 billion.               

Net of interbank loans, the NPL ratio was also better at 10.38 percent from last month’s 10.52 percent.  This developed as the reduction in NPLs overtook the 1.4 percent contraction in regular loans.  Year-on-year, this month’s ratio recovered by 4.46 percentage points from the previous 14.84 percent ratio.  

The ratio of restructured loans (RLs) to TLP likewise fell to 5.25 percent from month ago’s 5.53 percent on the back of a 5.5 percent decline in RLs.  Meanwhile, non-performing RLs fell at an even faster rate of 6.4 percent, driving the cutback in the non-performing RLs to total RLs ratio by 0.46 percentage point to 48.70 percent.  As of 31 December 2005, total RLs was reported at P98.97 billion while non-performing RLs were at P48.20 billion. 

Consistent with the improvements in the industry’s loan portfolio, the ratio of real and other properties owned or acquired (ROPOA), gross to gross assets (GAs) slightly dropped to 4.86 percent from month ago’s 4.87 percent.  This was on account of the greater rise in the industry’s gross assets (GAs) than in ROPOA, gross. 

The industry’s non-performing asset (NPA) ratio was also lower by 0.18 percentage point to 8.62 percent from 8.80 percent last month following the simultaneous 1.1 percent fall in NPAs and 1.0 percent expansion in the industry’s GAs.  Year-on-year comparison showed a significant 19.8 percent reduction in problem assets that brought an even greater cut (by 2.79 percentage points) in the U/KBs’ NPA ratio from end-2004’s 11.41 percent ratio.  As of year-end 2005, total NPAs stood at P344.96 billion from P348.79 billion at end-November 2005 and P430.39 billion at end-December 2004. 

Complementing their efforts to reduce problem accounts, banks also increased provisioning levels, bringing this month’s NPL and NPA coverage ratios stronger at 78.35 percent (from 71.88 percent) and 42.12 percent (from 39.55 percent), respectively.  Year-on-year, these ratios were also significantly better than the previous 60.40 percent NPL coverage ratio and 35.56 percent NPA coverage ratio.  Loan loss reserves at end-December 2005 were at P125.21 billion while NPA reserves were reported at P145.31 billion.

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