EVEN as bad debt across commercial banks grew by another $900 million during the three months to June 30, 2010, provisions made by those deposit-taking institutions for potential losses from those loans have grown at a slower pace.

According to the Bank of Jamaica (BOJ), nonperforming loans (NPLs) — loans for which principal and/or interest payments have not been made for three months and over — stood at $14 billion at the end of June compared to $13.1 billion three months earlier and $9.4 billion a year before.

Commercial banks, however, collectively had put up 79 per cent of the value of non-performing loans at the end of June compared to 80 per cent at the end of March and 91 per cent a year prior.

The last time that banks had provisions for loan losses totalling more than the bad debt on its books was in March 2009, when the ratio was 105.5 per cent.

Business Observer calculations show that since March 2009, provisions for loan losses have grown by an average of $689 million each quarter, or nearly half the average rate of growth for NPLs, which grew on average by $1.36 billion each three month period since Last year March.

The BOJ, which regulates the commercial banks, doesn’t require full coverage for all NPLs. The guideline for proper credit risk management requires that the longer the debts have not been serviced, is the higher the provision made for potential losses.

In showing the assets and liabilities for the commercial banks, for which it doesn’t show individual levels of NPLs, the BOJ showed National Commercial Bank (NCB) as having the highest provision for loan losses at the end of June — $3.9 billion — compared to its loan portfolio (gross) of $88.1 billion.

Bank of Nova Scotia (BNS) followed with provisions of $2.8 billion compared to its loan portfolio of $86 billion, while RBTT Bank had the third highest provision of $2.2 billion, although it had the highest provision relative to its total loans of $33.9 billion.

The rise in bad debt comes at a time when loan portfolios have been shrinking.

Across the seven commercial banks monitored by the BOJ, total loans fell by $7 billion during the quarter and $9.1 billion from year-earlier levels.

At the same time, provisions for loan losses grew by $570 million during the three months under review and by $2.5 billion over the 12 months ending June 30, 2010, even though NPLs across the seven banks grew by $900 million over the three months and by $4.6 billion over the year.

RBTT Bank had the largest increase in provisions during the quarter — $286 million — followed by BNS, which increased its provisions by $237 million over the three months and First Global Bank, which upped its provisions by $58 million.

Incidentally, NCB and PanCaribbeanBank’s loan loss provision declined by $36 million and $15 million, respectively.