Unpaid consumer loans hit near 10-year peak in September

By Ian Nicolas Cigaral(Philstar.com), 2 Feb 2021

MANILA, Philippines (UPDATE 7:56 a.m., Feb. 3) — Soured consumer loans held by banks soared to their highest level in nearly a decade as of the third quarter last year, as several households struggled to pay debts after a pandemic-induced recession threw job markets into turmoil.

From January to September last year, P167.8 billion consumer loans were deemed non-performing, or those that remain unpaid at least 30 days past due, data from the Bangko Sentral ng Pilipinas (BSP) showed on Tuesday.

That amount accounted for 8.51% of the P1.97 trillion consumer debts in the third quarter, bigger than the 5.55% ratio posted in June. It was also the highest level since the ratio hit 8.7% in December 2010.

Including other types of credit under the entire loan books however, soured consumer loans cornered a smaller 1.65% in September, albeit higher than 1.07% ratio in June.

For Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, the quicker rise in bad consumer debts was expected. “Consumer loans are usually the ones hit first in a financial crunch,” Asuncion said in a text message.

Nicholas Antonio Mapa, senior economist at ING Bank in Manila, agreed. “Loans to consumers are rising faster as households are more vulnerable to job losses and hardships as compared to firms who can access new credit lines to bridge their liquidity crunches,” Mapa said in an email.

Lenders had anticipated the increase in unpaid loans as the pandemic dragged on. Data showed banks set aside a P81.5 billion in the third quarter to protect their balance sheet from a potential build-up of unsettled consumer debts. The figure was up 15.7% from June.

In terms of risks, Asuncion believes the faster accumulation of bad consumer loans will not hit banks in the same way. “It really depends on how banks’ portfolios look like. There are some more vulnerable with the consumer loans crunch and some are quite insulated,” he explained.

Overall, loans extended to households declined for the second straight quarter in end-September to P1.97 trillion despite efforts by the central bank to stimulate credit growth by flooring interest rates to a historic low of 2%.

By type of consumer loan, residential real estate credit cornered the bulk of loans extended as of September. This segment amounted to P808.6 billion, up 1.1 % from the previous quarter.

Motor vehicle loans followed, which declined by 4.9% quarter-on-quarter to P562 billion after a slight uptick in motorcycle loans was offset by a decrease in auto loans. Credit card receivables came next with P405.7 billion, down 1.7% on a quarterly basis.

Meanwhile, salary loans inched up 2.95% quarter-on-quarter to P166.6 billion as of September while other consumer loans dropped 11.9% to P28 billion.