NPL provisions reduce banks’ profits by 29%

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

MANILA, Philippines — Earnings of Philippine banks slumped by 29 percent to P86.05 billion in the first semester from P110.97 billion in the same period last year as the industry’s provision for non-performing loans (NPL)breached the P100-billion mark due to the impact of the coronavirus pandemic, according to the Bangko Sentral ng Pilipinas (BSP).

Provisioning made by banks for credit losses on loans and other financial assets amounted to P103.77 billion from January to June, more than five times the P19.75 billion recorded in the same period last year.

On the other hand, there was a 24.3 percent decline in the amount of bad debts written off by banks to P1.43 billion in the first half from P1.89 billion from a year ago.

President Duterte signed Republic Act 11469, the Bayanihan to Heal As One Act, to fight the health emergency that mandates among others the grant of debt holiday to borrowers as Luzon was placed under lockdown in the middle of March to slow the spread of the coronavirus.

As a result, the economy came to a grinding halt, with gross domestic product (GDP) contracting by nine percent in the first semester after shrinking by a record 16.5 percent in the second quarter from 0.7 percent in the first quarter.

Data from the central bank showed the banking industry’s operating income increased by 22.5 percent to P449.67 billion in the first half from P377.24 billion in the same period last year.

The net interest income of banks operating in the country reached P331.61 billion, 15.4 percent higher than last year’s P287.21 billion. Interest income grew slightly to P438.9 billion from P436.84 billion, while interest expense dropped by nearly 29 percent to P106.29 billion from P149.44 billion.

The non-interest income of Philippine banks jumped by 31.1 percent to P118.06 billion from P90.03 billion as trading gains more than doubled to P69.01 billion from P32 billion, offsetting the 14.3 percent decline in fees and commission income to P42.04 billion from P49.07 billion.

According to the BSP, profits of universal and commercial banks or big banks fell by 22.2 percent to P78.24 billion in the first half from P100.61 billion a year ago as provisions for credit losses on loans and other financial assets reached P98.37 billion or almost six times higher than last year’s P16.51 billion.

Likewise, thrift banks or mid-sized banks recorded a double-digit 15.8 percent drop in earnings to P6.46 billion from P7.67 billion.