FNBB raises red flags on credit
Pauline Dikuelo | Friday March 6, 2020 16:09
As at December 31, 2019, individual customers owed FNBB P9.4 billion or about 60% of the bank’s total loan book.
For the six months ended December 31, 2019, total loans advanced by FNBB to its individual customers rose 9.6 percent, while impairments amongst individual customers rose 43% to P121.3 million.
Impairment is an accounting term used when it is likely that not all of the principal and interest of a loan will be collected.
Non-performing loans, or those where payments have been skipped, were pegged at P1.17 billion by December 2019, compared to P1.14 billion in June 2019.
FNBB CEO, Steven Bogatsu said the trend was worrying and showed that consumers are under pressure, augmenting their income based on credit.
“We have people close to retirement still borrowing mostly to take care of their families which could be leading to impairments. This is a risky space that requires a lot of caution,” he said, presenting the bank’s recent financials.
“We have a serious problem of non-performing loans and currently have about 400 houses under repossession.
“We have put in place a collection team that will also focus on rehabilitating customers.”
Bogatsu said the increase in the impairment provision was expected under the retail banking sector, which comprises individual customers, as opposed to organisations and corporates.
“The impairment charge was further increased by the rise in retail personal loans which in turn carry higher expected credit loss provisions at initial origination,” he said.
Bogatsu said arrears on loans in the broader banking sector continue to be concentrated amongst households and businesses and were expected to mildly increase in the short term.
According to notes accompanying FNBB’s results for the six months ended December 2019, the bank intentionally cut back lending on ‘high risk accounts’ in its business portfolio.
Loans to the business sector retreated to P2.6 billion by December 2019, from P2.9 billion as at December 2018. Impairments of loans under FNBB’s business sector amounted to P42.6 million from P48.5 million in the previous corresponding period.
While executives expressed concern, FNBB will take comfort from ratios showing that gross advances of loans to gross impairments of advances are down, as are gross advances to Non-Performing Loans.
Over the reporting period, the bank recorded a 13% increase in pretax profit at P554.6 million.