Financial Community Will Survive PAL Closure — Vistan

The Philippine Star

Monday, September 21, 1998

News

By Marianne Go

The financial community will survive the impact of the impending closure of Philippine Airlines (PAL).

This was the sunny forecast of Bankers Association of the Philippines (BAP) President Deogracias Vistan, who said the impact to Philippine banks of a PAL closure would mean only a slight 5 percent to one percent increase in its NPL (non-performing loan) level.

He added that the impact will be further cushioned if these banks had already taken or made provisions for loan losses for their exposure in the airline.

Vistan's confidence was shared by Isidro Alcantara, Executive Vice President of the Philippine Commercial and Industrial Bank (PClBank).

According to Alcantara, local banks' exposure to PAL amounts to some $200 million (P8 billion) only, out of a total debt of close to P90 billion. PAL's biggest creditors are export credit agencies.

Vistan pointed out that if local banks had already made provisions for PAL NPL’s, then the closure would have minimal or no effect on the financial community.

Vistan added that most of the banks are already holding on to some fixed asset collaterals from PAL since most of the local loans were for plane acquisitions.

Alcantara, for his part, acknowledged that most of the local bank creditors are secured the only danger may be that some may not be able to revover as much following the eventual liquidation of PAL

The management of the national flag carrier has announced that it will shut down operations at midnight of Sept. 23, after 57 years of operations. PAL said the decision follows a breakdown in talks between management and the union, which recently rejected an offer for 20 percent equity, three board seats, salary adjustments and medical benefits in exchange for a 10-year suspension of the collective bargaining agreement.

The Bangko Sentral ng Pilipinas (BSP) has also expressed concern over the impact of the impending PAL closure.

In a press statement, the BSP assured that the performance of the commercial banks remains stable as of June 30 this year.

The BSP reported that the banking industry sustained a strong capital position with the adjusted net worth-to-risk assets ratio of KB's leveling at 16.94 percent in the second quarter, slightly lower by 0.17 percentage points to17.11 percent in the first quarter and 17.17 percent a year ago.

Excess capital, the BSP said, followed an upward movement peaking at P142 billion in the second quarter from P125.6 billion a year ago and P141.4 billion in the first quarter.

Following the capital adequacy ratio standards of the Bank for International Settlements (BIS), capital ratio of the different bank groups in the second quarter leveled at 17.05 percent from the 16.83 percent in the first quarter for Expanded Commercial Banks (EKBs), 23.06 percent from 22.67 percent for domestic Non-Expanded Commercial Banks (NEKBs), and 20.39 percent from 22.02 percent for subsidiaries and branches of foreign banks.

At these capital levels, the local commercial banks definitely outperformed their counterparts in Asia where latest available capital ratios reportedly showed Malaysia at 11.8 percent, Indonesia at 10 percent, Thailand at 9.5 patent and Korea at 9 percent.

Loan quality remained manageable as commercial banks still posted a single-digit NPL ratio this quarter which stood at 8.95 percent of total loans from 7.42 percent last quarter. This also distinguished the local banks from those in Korea, Thailand, Indonesia, China and Malaysia where reported estimates of NPLs stood higher from 25 percent to 50 percent. To cover for attendant risk of NPLs which rose from P112.6 billion a quarter ago to P142.7 billion this quarter, commercial banks also built up their loan loss provisions (LLP), from P39.3 billion to P43.8 billion to comply with the initial ratio requirement of 1.0 percent LLP in October 1998.

Restructured loans reached P18,939 billion this quarter from P15,006 billion last quarter for an equivalent ratio to total loans of 1.19 percent via 0.99 percent last quarter and 0.83 percent a year ago. Asset quality also remained strong with real and other property owned and acquired (ROPOA) inching up at 1.03 percent of total resources compared to 0.88 percent a quarter ago and 0.59 percents a year ago.

Loan exposure to the real estate industry also receded this quarter from last quarter both in absolute terms and percentage-wise with real estate loans to total loans ratio dropping to 12.1 percent from 13.1 percent.

The combined resources of the 54 operating commercial banks peaked at P2,575.7 billion quarter end-June 1998, higher by P123.7 billion or 5.04 percent and P410.0 billion or 18.93 percent a quarter ago and year ago, respectively. Compared to previous quarters level, resources of all groups followed an uptrend notably topped by branches of foreign banks (FXBs) which grew by P61.6 billion or 24.48 percent followed by expanded commercial banks with increments of P52.6 billion or 2.63 percent and the P9.5 billion or 4.82 percent growth posted by non-expanded commercial banks.