UNIVERSAL AND commercial banks’ bad debts declined as of May from a year ago, reflecting their strong credit risk management, the Bangko Sentral ng Pilipinas (BSP) said in a statement yesterday.
Due to the nature of services offered by banks, the threat of illiquidity is always present. It is because of the diverse payment habits of their borrowers. There are trustworthy borrowers who pay on or before maturity dates while there are borrowers who pretend to have Alzheimer’s disease, forget about their debt and just run away. Most of the time, banks encounters the latter type of clients leaving them with billion of bad debt. It is the entry any financial and non-financial institution and corporations wouldn’t want to record in their financial statements since a high debt ratio corresponds to a high risk of being bailed out.
Being the most important banking institution holding 80% of trust fund, it is actually great to hear that collection of non-performing loan portfolio increased by 0.48% - from last year’s 103.92 billion to 101.37 billion this May. Perhaps, the credit committee was stricter in managing risk especially in evaluating clients. However, 101 billion is still a huge amount that has to be collected and quite impossible to retrieve everything.
Hence, Bangko Sentral ng Pilipinas requested that all financial institutions should be more transparent in reporting their non-performing loans portfolio so as to see the full extent of allowances for probable losses. This would justify whenever financial institution would call for an increase in interest rate to reduce bad debt and increase total loan portfolio.
Del Rosario, Keren Michelle
Desamparado, Lorenze Matthew