Small banks cut down bad loans

MANILA, Philippines – Soured loans of thrift, rural and cooperative banks continued to decline in the first half of the year amid the steady growth in the industry’s total loan portfolio.

Data released by the Bangko Sentral ng Pilipinas (BSP) showed the ratio between the gross non-performing loans (NPLs) of thrift banks and their total loan portfolio stood at 4.69 percent as of the end of June this year from 4.83 percent in the same period last year.

The total loan portfolio of thrift banks rose 13.4 percent to P638.15 billion while gross non-performing loans grew at a slower pace of 10.3 percent to P29.95 billion.

Loan loss reserves including specific allowance for credit losses and general loan loss provision expanded by 12.4 percent to P21.46 billion. This translated to a higher NPL coverage ratio of 71.63 percent in end June from 70.27 percent a year earlier.

“The thrift bank industry also continued to set aside substantial reserves as buffer for potential credit losses,” the BSP said.

It added the gross NPLs of thrift banks also remained manageable across economic sectors as seen in real estate activities and loans to individuals for consumption purposes that accounted for 64.1 percent of the banks’ portfolio.

On the other hand, soured loans of rural and cooperative banks declined to 11.9 percent from 13.45 percent.

Loans of rural and cooperative banks fell 9.8 percent to P119.78 billion while gross NPLs slid 20.2 percent to P14.25 billion.

The industry’s loan loss reserves dipped 13 percent to P8.91 billion, translating to a higher NPL coverage ratio of 62.51 percent in end June.

“To mitigate credit risks, the RCB industry set aside loan loss reserves,” the BSP said.

 The largest recipients of loans from rural and cooperative banks were agriculture, forestry and fishing, wholesale and retail trade, loans to individuals for consumption purposes, and real estate activities.

The central bank said it would continue to look into the loan quality of banks as part of its supervisory efforts to promote sound credit underwriting standards and financial stability.