RATING AGENCIES WORRIED OVER BANKS' VERY HIGH NON-PERFORMING ASSETS
MANILA, DECEMBER 11, 2006 (STAR) By Ma. Elisa P. Osorio - Despite the apparent improvements in the banking sector in terms of regulations and supervision, the very high nonperforming assets (NPAs) and possible lapses in reporting remain a concern for international rating agencies, a study said.
A regional update report prepared by the Asian Development Bank (ADB) it said that although the nonperforming loan ratio (NPL) of banks has been reduced to single digits, problems may still be encountered in reporting and provisioning.
"Notwithstanding positive overall data, some global rating agencies have expressed concern about possible lapses in reporting and provisioning in impaired NPLs, and note large differences in performance across banks," the study noted.
In addition to this, the study said the "very high but declining nonperforming asset ratio — associated, in part, with previously restructured loans and foreclosed real estate — is another area of concern."
The study likewise zeroed in on the global ratings agencies’ concern over the effectiveness of the supervisory and regulatory regime.
On a positive note, the ADB said the Philippines has made significant progress in strengthening the banking system evidenced by the competitive levels of the return on asset and high risk weighted capital adequacy ratio.
However, because banks have yet to market household lending and relatively limited lending to the business sector, the exposure to market risk is growing.
The ADB noted that the East Asian region’s credit growth, although slowing in some economies, remains to be strong overall. Unfortunately, the Philippines was left lagging behind as business investment remained weak and household lending insignificant.
The Philippines also deviated from the pact in terms of bank exposure to real estate and mortgage lending. The lender described mortgage lending in the Philippines as "even less significant than consumer lending."
Earlier, ADB’s Asia Regional Integration Center said the country will not meet its 2006 growth target as it estimates a full year growth 5.4 percent.
The government has set its gross domestic product (GDP) growth target at 5.5 percent to 6.1 percent.
For this year, the study said "strong exports and robust consumption–sustained by solid growth in worker remittances–led to a likely 5.4 percent economic expansion."
It further said 2007 will spell slower growth for the country as GDP growth rate falls to 5.3 percent.
The report said that although consumer spending will remain strong, exports which contributed to the country’s economy this year, will decrease thereby pulling down the GDP figures.
Chief News Editor: Sol Jose Vanzi
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