By Melissa Luz T. Lopez,
BAD DEBTS held by big banks grew by nearly a tenth in October but accounted for an even smaller share relative to total loans granted during the period, latest central bank data showed, signalling strong asset quality among lenders.
Non-performing loans (NPLs) incurred by universal and commercial banks totalled P107.691 billion as of end-October, rising by 9.4% from the P98.425 billion tallied a year ago. The amount is little changed from the P105.36 billion in soured debts held as of the previous month, according to the Bangko Sentral ng Pilipinas (BSP).
NPLs cover debts left unpaid at least 30 days beyond due date, which are considered as risky assets as these have high risk of default.
The pickup in bad loans is softer compared to a 17% climb in credit lines granted by the banks, which rose to P7.363 trillion against P6.293 trillion a year ago. Relative to the total loan portfolio of these big lenders, NPLs accounted for a lower share at 1.46%, improving from 1.56% in October 2016.
Despite the improving asset quality, banks still opted to hike their reserves for potential loan losses to P144.945 billion, up by 8.9% to nearly match the rise in NPLs. This was more than enough to cover the total stash of risky debts held as of end-October.
The surge in loans has been supported by an equally buoyant rise in bank deposits, which grew by 16.3% to reach P10.306 trillion, latest central bank data showed. This leaves banks even more room to expand their lending operations, with existing loan lines amounting to just 71.44% of their deposit stash.
This is against the 20% reserve requirement imposed by the BSP on all banks operating in the Philippines, which stands as their buffers against potential funding crunch.
On the other hand, the lenders held on to fewer non-performing assets, with their holdings of idle real property down to P78.201 billion from P80.034 billion last year. Banks have the power to seize assets of value posted as collateral — such as homes and cars owned by defaulting clients — in order to recover losses from non-paying borrowers.
The central bank keeps a close watch on the NPL ratios of banks and financial firms in order to monitor asset quality and maintain the soundness of the financial system.
There are 42 universal and commercial banks operating in the Philippines, which saw cumulative net income pick up by 4.5% to P106.26 billion for the first nine months.
The share of bad loans also went down to 1.96% of total debts held by all Philippine banks, despite a 16.1% surge in lending which hit P8.342 trillion.
Central bank officials have downplayed overheating risks raised by economists as they take note of double-digit credit growth, with policy makers saying that strong lending simply supports increased production activities as the economy expands.