Banks’ bad loans highest in 6 years

by Lawrence Agcaoili (The Philippine Star), 13 Aug 2020

MANILA, Philippines — The non-performing loan (NPL) ratio of banks rose for the sixth straight month to hit its highest level in almost six years at 2.53 percent in June from 2.43 percent in May, as past due and restructured loans continued to rise due to the impact of the coronavirus disease 2019 or COVID-19 pandemic.

This was the highest gross NPL ratio since the 2.56 percent booked in October 2014.

Latest preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed gross NPLs jumped 26.7 percent to P273.6 billion in June from P215.91 billion in the same month last year.

NPLs or bad debts refer to past due loan accounts where the principal or interest is unpaid for 30 days or more after due date.

The surge in NPLs was faster than the 5.2 percent rise in the loan book of Philippine banks to P10.82 trillion in end-June from P10.29 trillion in end-June last year.

The economy stalled as the entire Luzon was placed under enhanced community quarantine in the middle of March to prevent further spread of the deadly COVID-19.

The lockdown was relaxed starting June as the National Capital Region (NCR) shifted to general community quarantine, only to be reverted back to the stricter modified enhanced community quarantine last Aug. 4 as COVID-19 cases continued to soar and are now nearing 150,000.

Past due loans referring to all types of loans left unsettled beyond payment date increased at a slower rate of 26.4 percent to P375.27 billion from P296.89 billion for a past due ratio of 3.47 percent, while restructured loans grew by 25.7 percent to P48.47 billion from P38.55 billion for a restructured loan ratio of 0.45 percent.

Month-on-month, past due loans dropped by 33.4 percent to P375.27 billion in June from P563.76 billion in May as the economy was reopened with a more relaxed lockdown starting June.

The sharp rise in soured loans prompted the banking industry to augment the allowance of credit losses by 49.1 percent to P300.35 billion in June from P201.42 billion in the same month last year.

This translated to a higher NPL coverage ratio of 109.77 percent from 93.29 percent.

The NPL ratio for universal and commercial banks rose further for the sixth consecutive month to 2.14 percent in June from 1.77 percent in the same month last year. This is the highest level since the 2.17 percent booked in May 2014.

On the other hand, the NPL ratio of thrift or mid-sized banks increased to a four-month high of 5.71 percent in June from 5.66 percent in May, but lower than the 5.9 percent recorded in the same month last year.

Despite the uptick in NPLs, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the level is still considered relatively low and still near the record low 1.73 percent posted in December 2017.

Ricafort added NPL ratio is still dramatically better from double-digit levels with the peak of close to 20 percent nearly two decades ago.

“The recent gradual pick up in NPL ratio in the banking industry may be partly attributed to the lapse of the loan payment deadline extensions during the height of the lockdowns, which were relaxed further to general community quarantine for Metro Manila and nearby areas starting June,” Ricafort said.

The RCBC economist said the trend in NPLs in the coming months may still be largely a function of any further lockdowns in the coming months as this leads to significant reduction in economic activities especially production, sales, income/livelihood/employment of the hardest-hit businesses/industries, as well as the most vulnerable sectors.

The BSP is not expecting a repeat of the sharp rise in NPLs during the Asian financial crisis more than two decades ago as stimulus measures have unleashed P1.3 trillion to soften the blow of the COVID-19 pandemic.

Based on stress testing exercises, the regulator expects higher NPL over the short, run but not as high as the peak during the Asian financial crisis in 1997 and 1998. The NPL ratio ranged from three to 3.4 percent in the first half of 1997, and peaked at 18.7 percent in 2001.