Big lenders’ bad debts grow, but asset quality improves

BAD DEBTS held by big banks grew by a tenth in November amid more loans, according to latest data from the Bangko Sentral ng Pilipinas (BSP).

Non-performing loans (NPLs) of universal and commercial banks totalled P117.929 billion that month, up 10.5% from the P106.712 billion in November 2017.

NPLs are loans left unpaid for at least 30 days beyond due date. These are considered risky assets given lower chances for borrowers to settle them, thus, entailing losses for lenders concerned.

The rise in problem loans is slower compared to the overall increase in bank lending, with outstanding debts currently at P8.781 trillion. This is 15.6% more than the P7.597 trillion in total credit handed out the prior year, according to the Bangko Sentral ng Pilipinas (BSP).

Bigger NPLs notwithstanding, their share to total loans declined to 1.34% from the year-ago 1.4%, reflecting improvement in asset quality.

Past due loans, which include all balances beyond payment deadline, grew by 31.7% to hit P167.554 billion.

Restructured debts — those granted longer repayment periods — shrank by a fifth to P30.265 billion.

Big banks raised their allowance for credit losses in response to a pickup in bad debts. Lenders set aside P158.563 billion to cover potential defaults, which can adequately cover the entire level of soured loans. Coverage ratio, however, slipped to 134.46% in November versus 137.78% previously.

Value of non-performing assets held by banks totaled some P76.279 billion, representing real property and other items of value serving as borrowers’ collateral which were then foreclosed upon default.

Still, big banks saw their asset base expand further with a 9.3% increase in total deposits, which amounted to P11.341 trillion as of end-November. This funded their entire loan portfolio.

The central bank monitors the NPL ratios of banks and other lenders in order to keep track of asset quality and safeguard the health of the financial system.

Five of the biggest local banks in the country have been reported to be at risk of a $412-million loan default after Korean shipbuilder Hanjin Heavy Industries and Construction Philippines filed for corporate rehabilitation last week.

The BSP said the Philippine banking system is “robust” enough to weather this development, saying that affected lenders have enough capital buffers to cover these potential losses. In a statement on Friday, the central bank said the loan exposure concerned represents only 0.24% of total loans of the banking system.