Banks’ bad loans down to 13.9% as of March

The Bangko Sentral ng Pilipinas (BSP) reported yesterday a slight improvement in banks’ non-performing loan (NPL) ratio to 13.9 percent in March from 14.24 percent a month ago.

The latest figure was also an improvement from the 15.5-percent ratio recorded a year ago.

BSP Governor Rafael Buenaventura said there should be a sustained decline in NPLs especially after the Bureau of Internal Revenue (BIR) has clarified the tax policy on bad loans that would be sold to special purpose vehicles.

According to Buenaventura, the banking sector should realize that the deadline for SPVA was drawing near and if banks would not be able to unload their bad loans before the incentives expire, it will be their loss.

"They have no more excuse," Buenaventura said. "If they still refuse to unload their bad loans and take the haircut that everyone has to take anyway, then they will have no one but themselves to blame."

Total loan portfolio was recorded at P1.782 trillion in March while bad loans reached P247.855 billion. Net of interbank lending, however, actual bank lending only amounted to P1.455 trillion compared to P1.452 trillion last year.

The BSP also reported an increase in the industry’s foreclosed assets although total assets increased much faster, effectively lowering the ratio of real and other properties owned or acquired (ROPOA) to total assets.

The ROPOA of the industry went up from P204.318 billion in February to P206.117 billion while total assets went up from P3.495 trillion to P3.567 trillion.

On the other hand, the BSP said that non-performing assets of the industry improved very slightly from 12.84 percent in February to 12.56 percent of the industry’s total assets in March.

The BSP explained that the ratio declined because the industry’s bad assets actually declined to P448.07 billion in March while gross assets increased by 2.1 percent to P3.567 trillion.

There have been fears that heavy borrowing by the National Government had begun to crowd the private sector out of the credit market but the BSP attributed the decline only to the absence of demand.

The BSP’s statement, however, is belied by the results of its own Business Expectation Survey (BES) in the last quarter where businessmen expressed concern that banks were lending less and less to corporate borrowers.

Buenaventura said banks have been queried on the perception of the business sector but the banking industry only said it was not true.

The latest BSP data, however, supported the BES survey except the BSP said the decline in bank lending in February "may be linked to the increase in banks’ foreclosures (Real and Other Properties Owned and Acquired), spare capacity in manufacturing, and the current political uncertainty in the run up to the May presidential elections."

In particular, bank lending to the manufacturing sector and financial institutions, real estate and business services – which comprised about 50.2 percent of total KB loan outstanding – declined by 8.7 percent and 8.2 percent, respectively, in February 2004.

The BSP said the decline in KB loans to the manufacturing sector was due to the continued presence of spare capacity among firms in the sector, giving room for firms to expand production without necessarily requiring additional capital financed by borrowings from KBs.

Despite the contraction in February, Buenaventura said bank lending was expected to pick up as domestic demand strengthens in the coming months, as observed in most indicators of economic activity.