Banks' NPL ratio improves in 2012

Non-performing loans of universal and commercial banks composed 1.87 percent of their P3.62 trillion total loan portfolio at end-2012, the Bangko Sentral ng Pilipinas (BSP) said Friday. The figure was also lower than the 2.23 percent recorded in 2011 and the lowest since the 1997 Asian financial crisis, the BSP said. A non-performing loan (NPL) is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 90 days or depending on the contract terms. “The industry’s NPL coverage ratio [loan loss reserves to NPLs] also rose to 141.25 percent in December 2012 from 126.36 percent last year,” the BSP said, adding the industry has provisioned for more than 100 percent of its NPLs as a pro-cyclical safety net. “Combined with the strengthening of the NPL coverage ratio, the industry’s credit risk remains well-contained amid the current low-interest market environment and growing domestic economy,” it said. The BSP said the improving loan quality, along with the declining levels of real and other properties acquired and restructured loans, contributed to the improvement of the overall asset quality of the industry. The financial intermediation, real estate and manufacturing sectors were the biggest recipients of universal and commercial banks loans, it also said, adding each of the three sectors accounted for more than 15 percent of the industry’s exposure. The BSP also said in line with its role of promoting financial stability, it continues to monitor the quality  and soundness of banks’ loan portfolio. Keeping credit standards at high levels, which is essential to mitigating risks in the industry, remains a key policy objective, it added. — KBK, GMA News