Although the country’s universal and commercial lenders continue to beef up their loan portfolio, their ability to manage loan risks remains sterling as their combined default rate, or their bad loans ratio, dropped to a record low of 1.82 percent in December last year.
This, the Bangko Sentral ng Pilipinas (BSP) said, compares with bad loans averaging 1.98 percent the previous November and an indication of the banks’ sustained ability to maintain the quality of their asset holdings.
“This is the lowest NPL ratio posted by universal and commercial banks in the years after the 1997 crisis,” the BSP reported on Tuesday.
The decline in the banks’ NPL was noted against a background of rising loan portfolios during the year.
NPLs, popularly known as “bad” or “soured” loans, pertain to credit accommodations that borrower have not serviced for more than 90 days from due date.
A lower NPL ratio renders banks less susceptible to loan quality erosion and that the banks loan assets are healthy with only a small percentage of bad loans.
In absolute terms, the banks’ NPLs improved to only P93.06 billion at end-December 2014 from P95.52 billion the previous November.
Robust lending was sustained as the total loan portfolio of universal and commercial banks rose to P5.118 trillion last December from the P4.83 trillion a month earlier.
“The Bangko Sentral ng Pilipinas monitors the quality of bank loans as part of its efforts to foster the strength of individual banks, as well as the systemic stability of the domestic banking industry,” the BSP said.
The BSP also said that aside from keeping the NPL ratio low, the big banks continued to allocate more than ample reserves for potential credit losses.
At end-December last year, the industry’s loan-loss reserves represented 142.43 percent of their NPLs. The figure rose from 140.91 percent recorded a month earlier.
“The industry’s gross NPLs also remained manageable across economic sectors as seen in financial intermediation; real estate, renting and business activities; manufacturing; wholesale and retail trade; and electricity, gas and water supply,” the BSP said.
These sectors comprise 72.4 percent of the banks’ total loan portfolio.