Banks’ loan, asset quality continues to improve

PHILIPPINE banks’ loan and asset quality have remarkably improved as non-performing loans (NPL) and non-performing assets (NPA) ratios were better than their pre-crisis levels of around four percent.

As of end-April 2011, the NPL ratio of universal and commercial banks (U/KBs) stood at 2.95 percent, an improvement by 0.04 percentage point from 2.99 percent at end-March 2011 and by 0.39 percentage point from year ago’s 3.34 percent ratio.

Bangko Sentral ng Pilipinas (BSP) said that this is the third consecutive month that the NPL ratio has been below three percent.

BSP said that the month-on-month improvement was due to the 2.57 percent expansion in total loan portfolio (TLP), which outpaced the 1.25 percent increase in NPLs.

U/KBs’ NPLs rose to P83.44 billion as of end-April 2011 from last month’s P82.41 billion while TLP reached P2,830.50 billion from P2,759.61 billion.

Net of interbank loans, the NPL ratio eased to 3.16 percent from last month’s 3.21 percent and year ago’s 3.79 percent ratio.

The ratio declined from last month as the growth in NPLs was offset by the 2.93 percent increase in regular loans to P2,642.91 billion from P2,567.67 billion last month.

The restructured loans (RLs) to TLP ratio fell to 1.48 percent from last month’s 1.54 percent and year ago’s 1.74 percent ratio. The month-on-month decline in the ratio was mainly due to the 1.45 percent decrease in gross RLs to P42.21 billion.

Meantime, the real and other properties acquired (ROPA) to gross assets (GA) ratio remained at 1.98 percent from last month and improved from year ago’s 2.35 percent ratio. This developed as the 0.65 percent reduction in ROPA to P121.93 billion outpaced the 0.59 percent cut in GAs to P6,139.23 billion.

The non-performing assets (NPA) to GAs ratio slightly went up to 3.35 percent from last month’s 3.32 percent but improved from year ago’s 3.89 percent ratio. The increase in the ratio from last month was due to the 0.11 percent expansion in NPAs to P205.37 billion from last month’s P205.14 billion, which was accompanied by the reduction in GAs.

BSP stressed that the industry provided adequate provisioning against potential credit losses.

The NPL coverage ratio strengthened to 121.06 percent from last month’s 120.37 percent and year ago’s 108.90 percent. Likewise, the NPA coverage ratio (NPA reserves to NPAs) widened to 62.88 percent from last month’s 62.07 percent and year ago’s 55.93 percent ratio.

Meanwhile, the central bank earlier reported that total outstanding loans of commercial banks, net of banks’ reverse repurchase (RRP) placements with the BSP, continued to expand in April by 14.2 percent, broadly similar to the previous month’s expansion of 14.1 percent.

Bank lending including RRPs grew at a faster rate of 18.0 percent from an expansion of 16.8 percent in March, to reach P2.7 trillion.

On a month-on-month seasonally-adjusted basis, commercial banks’ lending in April rose by 1.7 percent for loans net of RRPs and by 2.7 percent for loans inclusive of RRPs.

The growth in loans for production activities-which comprised about four-fifths of commercial banks’ total loan portfolio-was broadly steady at 15.7 percent in April from 15.6 percent a month earlier. Meanwhile, the growth in consumer loans (which include credit card receivables and auto loans) was unchanged at 12.9 percent.

The expansion of production loans was driven by lending to electricity, gas and water (which grew by 47.3 percent); manufacturing (19.5 percent); real estate, renting and business services (17.2 percent); agriculture, hunting and forestry (11.0 percent); and wholesale and retail trade (13.8 percent).

Meanwhile, the growth in lending to construction activities decelerated to 0.1 percent from 8.5 percent in the previous month. Contractions were posted in lending to four production sectors, namely, health and social work (-9.0 percent); fishing (-24.1 percent); education (-22.9 percent); and public administration and defense (-5.5 percent).

This developed as domestic liquidity or M3 reached P4.2 trillion in April 2011, higher by 7.3 percent relative to a year earlier.

On a monthly basis, seasonally-adjusted M3 contracted slightly by 0.6 percent from a growth of 1.4 percent in the previous month.

BSP said the steady expansion in net foreign assets (NFA)-at 20.2 percent in April-fueled the growth of domestic liquidity.

The BSP’s NFA position grew by 41.3 percent due in part to sustained foreign exchange inflows from overseas remittances as well as portfolio and direct investments.

Meanwhile, the NFA of banks contracted further by 92.4 percent from a decline of 85.7 percent in the previous month as their foreign liabilities rose while their foreign assets declined.

Banks’ foreign liabilities increased with the rise in bills payable as well as higher placements and time deposits made by the head offices/other branches of foreign banks with their Philippine branches.

Meanwhile, the contraction of banks’ foreign assets was due in part to the decline in loan receivables from foreign banks.

Net domestic assets (NDA), meanwhile, decreased anew by 9.3 percent in April following a decline of 3.5 percent in March.

This was due largely to the continued expansion of the net other items account (which includes revaluation and capital and reserve accounts as well as SDA placements of trust entities).

By contrast, net domestic credits rose by 7.2 percent, due to a further increase in credits extended to the private sector at 11.9 percent.

This trend is consistent with the broadly steady growth of bank lending to the productive sectors of the economy.

Meanwhile, the growth in credits extended to the public sector declined due mainly to the contraction in credits extended to the National Government (NG) indicating ample liquidity as reflected in the increase in NG deposits with the BSP and other banks during the month.

View the original article here

Exporters with an eye on future must now look beyond eurozone

Tuesday, 28 June 2011

Greece's George Papandreou must undo 10 years of fiscal squander

Just how bad is the Greek crisis and how much of an impact will it have elsewhere? Dr Esmond Birnie, economist at PricewaterhouseCoopers, looks to the Med via the rest of the eurozone

It's been a turbulent week for Greece; and not a great one for the euro, either.

Having agreed a €110bn bailout loan package last year, the Greek government desperately needs to get its hands on €12bn by July 3. But this crisis is about more than just keeping the lights on in Athens - the very survival of the eurozone is at stake.

Having marginally survived a confidence vote in parliament, Greek premier George Papandreou, still has to deliver another round of deeply unpopular austerity measures to keep the EU bail-out money coming. Tax rises, spending cuts and privatisation are all essential elements of the €12bn bailout, but even that will only bring temporary relief.

To avoid a complete Greek tragedy, the EU, the International Monetary Fund and jittery financial markets will have to agree a further rescue package, probably worth around €120bn to give Greece the opportunity to boost tax revenues, rebuild the economy and restore the credibility of its near junk-rated, sovereign bonds.

European leaders, particularly Germany and France, have staked their credibility on the euro as a political, as well as a financial, project, so they are reluctantly preparing another Greek rescue package. But if either they or Papandreou can't deliver and Greece crashes out of the eurozone, the future of the euro and the vision of closer European integration may be over.

The Greek crisis is a parable of the fiscal sins of the father being visited on the son. Mr Papandreou Senior, the then Greek premier, embarked on high spending policies in the early 1980s, but with economic squander firmly embedded for a decade, it now falls to his son George, to try and stop the rot.

So what happens next? The most recent statistics indicate that the Greek budget deficit was even worse than previously feared. Any further loan is now subject to the vagaries of politics in the major euro states, most notably Germany, and whether or not the Greek public signs up to an eye-watering austerity package. Papandreou's Pasok (Socialist) party then has to deliver it and survive.

If the rescue fails, there are several possible options. Greece could admit that it can't meet its debt obligations and embark on debt restructuring - telling its creditors they won't get what's owed and will have to wait for partial payment. It could leave the euro, revert to a devalued drachma, and hope devaluation would cut costs and boost exports. Or the doomsday scenario - admit defeat and default, probably bankrupting Greek banks and hitting German and French financial institutions very hard.

Whatever the options, it comes down to which is least worst. Any form of default will have knock-on consequences for the weaker countries - Portugal, Ireland, Italy and probably Spain - who will see higher interest rates on debt repayments. There could even be a domino effect where a Greek withdrawal from the euro might encourage others to do the same, sparking competitive devaluation and wiping out any first-mover advantage.

But this is a crisis not entirely made in Athens. Even in the early days of the eurozone, many wondered how the less competitive "southern" economies could remain flexible while tied to the same monetary policy as Germany. Since Italy, Spain, Portugal and even Ireland no longer had the option of devaluing against Germany, the theory was that their domestic wage rates would take the strain. But this did not happen and Greece, other Mediterranean countries and Ireland enjoyed a decade of an artificial boom fuelled by cheap credit underpinned by euro membership. There may be an eleventh-hour solution to the Greek problems, but given the enormous pressures on some member states and the jittery financial markets, there is no short-term certainty of eurozone stability.

This means it would be sensible for Northern Ireland exporters and retailers to prepare for further devaluation of the euro against sterling. There would also be considerable merit in having a diversity of export markets and looking beyond euro land to, say, the US, India and China.

Any form of default will have knock-on consequences for the weaker countries such as Ireland

var idcomments_acct = '588ddc346b4fea495950ef21a269d59e';var idcomments_post_id = '16016935';var idcomments_post_url;

View the original article here