By Eileen A. Mencias

The Bangko Sentral warned of a slight rise in bad loans this year but they will not be near the levels hit after the Asian financial crisis of 1997.

?We?re hoping it [bad loans ratio] will stay where it is but there?s a chance it will go up a little but nowhere near Asian crisis peaks,? Bangko Sentral Deputy Gov. Nestor Espenilla Jr. told reporters.

?Our projection [for the bad loans ratio] is 4 percent at the end of 2008. In 2009, it will go up a bit but it should remain at single digits.?

The ratio stood at 3.97 percent at the end of October, lower than September?s 4.04 percent, because of higher loans and lower defaults.

?Banks are more cautious. That?s the big difference between now and in 1997 when the banks were lending flat out so that when it hit, the hit was big. Since then, they have become very cautious so adjustments are not that large. Even if the situation worsens, it [bad loans ratio] will definitely stay within single-digit levels,? Espenilla said.

Credit markets were feared to have tightened, especially after the Lehman Brothers collapse in September.

Central bank data, however, showed that loans of commercial banks rose in October to P2.357 trillion from P2.327 trillion in September. Bad loans dropped slightly to P93.58 billion from P94 billion.

The bad loans ratio fell to 3.97 percent in October from September?s 4.04 percent.

The bad loans ratio serves as a key indicator of the health of banks and their ability to provide funding for productive projects.

After the Asian financial crisis hit in 1997, the bad loans ratio exceeded 20 percent, tying up much of the assets of banks that constricted credit growth and, eventually, the economy.

Foreclosed assets inched up slightly to P142.49 billion from P142.39 billion while restructurings climbed to P57.98 billion from P57.96 billion.

Fitch Ratings has warned of higher loan defaults in the region because of the bleak outlook on the global economy.

Most Asian banks, including those in the Philippines, however, will still see positive net results, with the exception of Taiwan and Korea.

While Fitch considers the prospects for Philippine banks to be negative, risks arising from the operating environment are generally well supported by the capital position of local banks.

Philippine banks have enjoyed above average return on assets from good trading gains from their holdings of government securities.

This diminished last year because of rising yields against the backdrop of interest rate hikes and higher credit spreads.