Rural banks’ bad loans soar

Posted on June 19, 2013

RURAL AND COOPERATIVE banks’ exposure to bad debts rose to its highest level in six years as their borrowers bore the brunt of the typhoons that hit the country last year.

Non-performing loans (NPL) of rural and cooperative banks totaled P14.746 billion in 2012, accounting for 11.57% of their total loans, the Bangko Sentral ng Pilipinas (BSP) said in a statement yesterday.

The NPL ratio climbed from the 10.14% posted in 2011 and was the highest since the 12.7% notched in the third quarter of 2006.

The increase was largely due to “fortuitous events,” the BSP said, such as the monsoon rains and typhoons Gener and Helen (international names: Saola and Kai-tak, respectively).

The monsoon rains and the two typhoons entered the country in quick succession from August to September 2012, inundating both the capital and provinces.

According to the National Disaster Risk Reduction and Management Council, total damage to infrastructure and agriculture cost P728.331 million for typhoon Gener, P125.13 million for typhoon Helen and P3.056 billion for the monsoons.

Broken down, rural banks’ NPLs -- obligations unpaid by borrowers at least 30 days after due date -- made up 10.65% of their total loans last year, inching up from 10.32% in 2011. The NPL ratio of cooperative banks ballooned to 19.84% in 2012, more than twice the 9.49% the year before.

Total loans of rural and cooperative banks made up 2.74% and 0.3%, respectively, of the banking system’s lending business last year.

Rural banks’ total loan portfolio amounted to P114.745 billion, while that of cooperative banks reached P12.727 billion.

Despite a spike in rural and cooperative banks’ bad loans, they managed to beef up their loan loss reserves -- funds set aside by banks to cover for any defaults. Their loan loss reserves could cover 61.74% of their NPLs last year from 50.36% in 2011.

“An increase in loan loss provisioning indicates heightened prudence against credit losses,” the BSP said.

Rural and cooperative banks typically see higher NPL ratios than that of universal and commercial banks, as they target low-income borrowers from the countryside. Universal and commercial banks’ NPL ratio stood at 1.87% last year.

Meanwhile, the BSP said in a report released yesterday that regional growth in the country last year was “broad-based.”

The agriculture sector continued to expand, driven by palay, corn, chicken and swine production. The fishery sector continued its downtrend due to damaged aqua farms and fishponds as well as fewer fishing trips due to high production costs and the inclement weather.

Meanwhile, the industry and services sector surged, supported by the boom in the property market.

“An uptick in the number of approved building permits were seen in CALABARZON (Cavite, Laguna, Batangas, Rizal and Quezon), Central Luzon, Northern Mindanao, Zamboanga Peninsula, Central Mindanao and Bicol,” the BSP said.

Moving forward, the central bank cited a major challenge that could hamper regional development, particularly in Mindanao, is “the lack of adequate supply of electricity that threatens economic activities.”

Extreme weather conditions could also hit agriculture-reliant regions, it said.

The government’s infrastructure program, on the flipside, will be the key driver of development.

“The government’s various infrastructure improvement and development programs across the country are expected to invigorate economic activities and revitalize business in the regions,” the BSP said.

The government’s tourism-oriented projects, including the construction of hotels and resorts, improved public security and transportation services, and the vibrant promotion of tourist sites are also expected to further boost the regions. -- Ann Rozainne R. Gregorio