Banks’ NPLs dip to 18.06% in June

As Metropolitan Bank and Trust Co. completed the sale of its soured loans to Lehman Brothers, the commercial banking industry saw a 5.4-percent decline in the volume of bad loans last June, improving the industry's overall standing for the first time this year.

Data released by the Bangko Sentral ng Pilipinas (BSP) indicated that the non-performing loans (NPL) booked by commercial banks declined by P16.3 billion from P305.460 billion in May to P288.97 billion while the total loan portfolio (TLP) dropped by P56.9 billion – from P1.657 trillion to P1.6 trillion.

Because the drop in NPL was faster than the drop in TLP, the BSP said the ratio of the industry's NPL to its TPL improved from 18.43 percent in May to 18.06 percent in June.

The decline in NPL ratio was the first sign of improvement since banks began to unload non-performing loans to improve their balance sheet with the help of special purpose asset vehicles (SPAVs).

BSP Governor Rafael Buenaventura said the improvement was an indication of how the banking industry would benefit even more if Congress actually manages to pass the proposed SPAV Law.

According to Buenaventura, the law was critical to the containment of the industry's rising NPL and without a clear legislative guideline to govern it, the use of SPAVs to isolate bad loans and turn them around would be severely limited.

Compared to last year‚s numbers, however, the June NPL ratio was still significantly higher than the 16.96 percent ratio recorded in June 2001 when the volume of NPL was recorded at only P267.116 against the TLP recorded at P1.575 trillion.

According to the BSP, the decline in NPLs reflected the completed sale of some P16.3 billion worth of bad loans by MetroBank to Lehman Brothers which had agreed to turn the assets around and eventually unload them.

The impact of this one transaction was enough to negate the downsizing in loan portfolio posted by all groups led by private domestic expanded KBs, followed by foreign branches, government banks and other private banks.

On the other hand, the NPL coverage ratio rose to 47.3 percent from 44.4 percent in May as loan loss reserves increased and NPLs dropped.

Gross restructured loans (RLS) also contracted by 1.6 percent and with the 3.4 percent drop in TLP, the ratio of RLs to TLP went up from 7.1 percent in May to 7.3 percent.

The ratio of Real and Other Properties Owned and Acquired (ROPOA) to gross assets was steady at 5.3 percent. Overall asset quality, according to the BSP, improved as non-performing assets (NPA) receded from 15.1 percent in May to 14.5 percent. As the NPA dropped by 3.6 percent, it outpaced the 0.02 percent rise in gross assets. – Des Ferriols