Thrift banks’ bad loans expand at end-October

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SOURED DEBTS held by thrift banks continued to climb in October, latest central bank data showed, with reserves for possible losses enough to cover just half the amount.

Nonperforming loans (NPLs) reached P47.684 billion as of the month, picking up from September’s P47.095 billion and surging 15.9% from last year’s P41.159 billion, data from the Bangko Sentral ng Pilipinas (BSP) showed.

NPLs refer to debts left unpaid for at least 30 days past due date, which are viewed as risky assets given the slim chance for borrowers to actually pay their outstanding balances. In turn, this would spell losses for lenders.

The growth in NPLs outstripped the 6.1% increase in total credit lines, which amounted to P900.217 billion from P848.746 billion in October 2017.

NPLs took a higher share of 5.3% relative to the total loan portfolio, higher than the 4.85% level tallied the previous year.

Despite the bigger NPL stash, thrift lenders reduced their reserves for possible credit losses to P26.26 billion, which is 7.2% lower than the P28.287-billion allowance set aside last year. This can cover just 55.07% of the problem loans, significantly lower than the 68.73% ratio posted in October 2017.

Thrift banks mainly serve individual borrowers and small firms, which are deemed riskier markets compared to corporate clients.

Loan growth also climbed faster than total deposits, which posted a meager 2.1% climb to P961.548 billion. Still, this funded the entire loan book of the banks.

BSP Deputy Governor Chuchi G. Fonacier told members of the Chamber of Thrift Banks last month that the industry should “remain vigilant” for this declining loan quality, citing the need to strengthen measures against credit risks as lending activity remains upbeat.

Still, Ms. Fonacier said the ratio of bad loans “is far from being worrisome” so far.

The BSP said that market interest rates have “gradually risen” following the 175-basis-point increase in policy rates in 2018, but not at a rate that would drag bank lending activities. In particular, rising yields appear to have a “limited” impact on consumer lending, with the pace still robust despite some deceleration observed in the past few months.

Growth in retail loans eased to 14.6% in October from 18.2% the previous month, according to latest BSP data, due to slower increases in credit card and auto loans and a drop in salary-based general credit.

Fitch Ratings has flagged overheating risks in the economy due to rapid credit growth, although central bank officials have said that the pace remains “manageable” and supportive of increased economic activity. — Melissa Luz T. Lopez