Bad loans of rural, cooperative banks climb further

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BAD LOANS held by smaller banks surged faster in September 2018 to outpace a modest expansion in total lending, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Non-performing loans (NPLs) held by rural and cooperative banks rose by 14.2% as of end-September to P16.754 billion, coming from the P14.675 billion recorded during the comparable period in 2017.

This is faster than the 4.1% climb in total lending, which brought the loan portfolio of these small lenders to P140.962 billion from P135.393 billion the previous year.

NPLs refer to loans left unpaid at least 30 days past due date. These are considered as risky assets given a slim chance for borrowers to actually pay for their outstanding balances, which means losses for lenders.

With more soured debts, the banks’ NPL ratio rose to 11.89% of total outstanding loans, rising from 10.84% in September 2017.

Past due loans, which cover all types of loans which missed the payment deadline, soared by 31.5% to P21.922 billion, data showed. Meanwhile, restructured debts with longer repayment periods also picked up by roughly a tenth to reach P2.434 billion.

Unlike the bigger universal and commercial banks, rural lenders mostly cater to smaller clients and communities, with a focus on the farming sector as well as micro and small businesses operating in their area. They are considered as riskier segments compared to corporate borrowers.

With the higher share of problem loans, the banks hiked their allowance for possible credit losses to P12.747 billion, 11.7% higher than the P11.408 billion which they set aside previously. This is enough to cover 76.09% of the NPLs, providing some comfort that the lenders can stay afloat even if these unsettled accounts are written off.

Rural banks also saw a bigger deposit base in September, with the amount rising by 5.1% to P173.436 billion. This funded the loans granted by lenders.

The central bank keeps track of NPLs to assess the asset quality of lenders.

The BSP shut down 12 problem banks in 2018 after they found that the lenders were not viable to sustain their operations. Governor Nestor A. Espenilla, Jr. previously said that they are actively weeding out “weak” banks in the interest of consumer protection and financial stability.

In another development, the central bank is pushing all banks and financial firms to actively promote the use of electronic fund transfers among clients and personnel.

BSP Memorandum 2019-001 signed by Deputy Governor Chuchi G. Fonacier said that lenders have until March 31 to educate frontline staff in bank head offices and branches about the use of two automated clearing houses.

Lenders also need to post information materials and online links about the InstaPay and the Philippine Electronic Fund Transfer System and Operations Network or PESONet.

The central bank has required all banks and other financial firms to offer electronic banking portals and interbank transfer schemes in place by Nov. 30, 2018, in line with the regulator’s goal raising the share of e-payments to 20% of all transactions in the Philippines by 2020, coming from a measly 1% share back in 2013. — Melissa Luz T. Lopez