Banks’ NPL ratio fall to historic low of 2.8%

Soured loans down to P81.91B as of end-May
By: Michelle V. Remo
Philippine Daily Inquirer
8:50 pm | Sunday, July 24th, 2011

The Exposure of the country’s universal and commercial banks to bad debts fell to a historic low in May, a development that highlighted the significant progress of the banking sector since the Asian financial crisis of the late 1990s.

The Bangko Sentral ng Pilipinas reported Friday that the average nonperforming loans (NPL) ratio of universal and commercial banks settled at only 2.8 percent as of end-May, matching the record low registered in December 1996 before the Asian financial crisis struck in 1997.

The latest NPL ratio was better than the 2.95 percent as of April this year and the 3.31 percent as of May last year.

The nonperforming loan ratio is the proportion of bad debts to the outstanding loans of banks. A loan becomes a bad debt if it remains unpaid at least 30 days after maturity.

The BSP said the decline in the NPL ratio in May was a favorable development because it did not come with reduced appetite for lending. It said the NPL ratio fell both because of the drop in the bad debts and the expansion of the outstanding loans.

The latest NPL ratio was a result of the P81.91 billion in bad debts and the P2.93 trillion in outstanding loans. The latest amount of bad debts was down 1.83 percent from P83.44 billion as of end-May last year. On the other hand, the latest outstanding loans were up 3.48 percent year on year from P2.83 trillion.

The BSP also said the decline in the NPL ratio also came without having to engage in higher amounts of debt restructuring for borrowers. It said the ratio of restructured loans to the total loan portfolio of banks dropped to 1.39 percent as of end-May from 1.63 percent a year ago.