Banks' NPL ratio down to 3.2% in October

By Lawrence Agcaoili (The Philippine Star) Updated December 18, 2010 

MANILA, Philippines - The ratio of soured loans of universal and commercial banks to the industry’s total loan portfolio eased further in October as the surprising economic growth in the first three quarters of the year as well as strong corporate earnings enabled borrowers to pay their outstanding financial obligations on time, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Data released by the BSP yesterday showed that the industry’s total loan portfolio went up at a faster rate of 2.7 percent to P2.604 trillion as of end-October this year from P2.534 trillion as of end-October last year while the non-performing loans (NPLs) of universal and commercial banks increased by only 2.3 percent to P83.35 billion from P85.33 billion.

This resulted in a 0.17 percentage point decline in NPL ratio to 3.2 percent in end-October from 3.37 percent in end-October last year.

The BSP, likewise, added that October was the 25th consecutive month that the NPL ratio has been below four percent.

BSP officials believe that the NPL ratio of banks would continue to improve as the stronger-than-expected gross domestic product (GDP) growth in the first nine months of the year would translate to better corporate earnings as well as lower interest rates.

The country’s GDP posted a surprising growth in the first nine months of the year, expanding by 7.5 percent from 0.7 percent in the same period last year. The GDP growth slowed down to 6.5 percent in the third quarter after expanding by 8.2 percent in the second quarter and 7.8 percent in the first quarter.

Last July, economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) raised the GDP growth target to a range of five percent to six percent instead of 2.6 percent to 3.6 percent this year due to the stronger-than-expected growth in the first quarter of the year.

Stronger domestic output, officials explained, would help corporate and individual borrowers service their financial obligations on time.

The gross assets of universal and commercial banks increased by 8.8 percent to P5.819 trillion as of end-October this year from P5.347 trillion as of end-October last year while the industry’s non-performing assets (NPA) retreated by 5.1 percent to P211.19 billion from P222.49 billion.

Likewise, the BSP said the growth of loan loss reserve (LLR) of banks climbed 7.6 percent to P97.64 billion as of end-October this year from P90.76 billion as of end-October last year.