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Banks’ bad debts rise, still deemed manageable

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BAD DEBTS held by big banks grew in May but accounted for a small share of total lending, according to latest data released by the Bangko Sentral ng Pilipinas (BSP).

Non-performing loans (NPLs) held by universal and commercial banks totalled P109.176 billion, rising from P106.408 billion in April and up 8.8% from the P100.318 billion in May 2017.

NPLs refer to loans left unpaid at least 30 days past due date. These are considered risky assets given a slim chance of borrowers actually settling their outstanding balances, which would mean losses for the lender.

Still, the pickup in soured debts clocked in slower than the 17.3% rise in total lending. Outstanding credit lines totalled P8.147 trillion, which surged from P6.947 trillion in May last year.

NPLs also remained manageable despite brisk lending activity. These problem loans accounted for just 1.34% of total lending, lower compared to the 1.44% share tallied a year ago.

Lenders beefed up provisions against possible credit losses. Loan loss reserves went up 14.2% to P158.478 billion from the P138.755 billion set aside the previous year. The amount is more than enough to cover the unsettled dues, which meant that banks can maintain their financial footing even if these bad loans were written off.

On the other hand, banks’ non-performing assets in the form of real properties amounted to P76.656 billion, slipping from P77.973 billion the past year. The amount includes the value of real property and other items of value which were seized from clients for failing to pay their debt.

Banks also remained fairly liquid as the loan-to-deposit ratio stood at 74.6% as of end-May, higher than the 72.12% level tallied a year ago. Loans are funded largely by a solid deposit base, which grew 13.4% to hit P10.921 trillion.

The BSP monitors the NPL ratios of banks and financial firms in order to monitor asset quality and maintain the soundness of the financial system.

Recent interest rate hikes from the BSP are not expected to lead to bigger loan defaults, Moody’s Investors Service has said. Moody’s senior analyst Simon Chen has said he expects tightening by central bank to be “gradual and modest,” hence, will not lead to significant asset quality pressures for lenders and will remain manageable for both corporate and retail borrowers. — Melissa Luz T. Lopez