Banks’ bad loans highest in 6 years

by Lawrence Agcaoili (The Philippine Star), 11 Sep 2020

MANILA, Philippines — The gross non-performing loan (NPL) ratio of the local banking industry picked up for the seventh straight month in July, hitting its highest level in almost six years as overdue loans continued to soar amid the economic fallout from the coronavirus pandemic.

The Bangko Sentral ng Pilipinas (BSP) said the NPL ratio rose to 2.67 percent in July from 2.53 percent in June, the highest since the 2.74 percent recorded in August 2014.

According to the BSP, the gross non-performing loans of banks surged by 32.1 percent to P290.1 billion in July from P219.57 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 banking industry’s total loan portfolio inched up by 5.2 percent to P10.86 trillion in July from P10.32 trillion a year ago.

Past due loans, or loans which are left unsettled beyond payment date, soared by nearly 89 percent to P573.19 billion in July from P303.66 billion a year ago, resulting in a past due ratio of 5.28 percent.

Likewise, restructured loans increased by more than 23 percent to P49.03 billion from P39.81 billion for a restructured loan ratio of 0.45 percent.

Philippine banks have sacrificed earnings by raising their allowance for credit losses in anticipation of a sharp rise in bad loans. The industry’s provision for loan losses surged by 59.1 percent to P321.85 billion in July from P202.22 billion in the same month last year.

This translated to a higher NPL coverage ratio of 110.94 percent from 92.1 percent.

The NPL ratio for universal and commercial banks rose further for the seventh consecutive month to 2.26 percent in July from 1.63 percent in the same month last year. This is the highest level since the 2.38 percent recorded in November 2013.

On the other hand, the NPL ratio of thrift or mid-sized banks increased to 6.17 percent in June from 5.99 percent recorded in the same month last year. This is the highest level for the industry since the 6.2 percent booked in March 2013.

BSP managing director Lyn Javier earlier told the Senate committee on banks, financial institutions and currencies that based on a survey conducted by the central bank, the banking industry’s NPL ratio is expected to almost double to 4.6 percent in end-December from 2.4 percent in end-March due to the pandemic.