Banks’ bad loans hit 11-year high

by Lawrence Agcaoili (The Philippine Star), 11 Apr 2021

MANILA, Philippines — The asset quality of Philippine banks further deteriorated for the second straight month in February as the industry’s gross non-performing loan (NPL) ratio rose to 4.08 percent, the highest in more than 11 years due to the impact of the COVID-19 pandemic, according to the Bangko Sentral ng Pilipinas (BSP).

The latest NPL ratio was sharply higher than the 3.72 percent recorded in January and 2.2 percent in the same period last year.

The last time the gross NPL ratio breached the four percent level was in July 2010 at 4.03 percent. This was also the highest since the industry booked a gross NPL ratio of 4.09 percent in October 2009.

Banks have been piling up NPLs or past due loan accounts, where the principal or interest is unpaid for 30 days or more after due date, has been rising due to the uncertainties brought about by the pandemic.

Based on BSP data, the banking industry’s soured loans surged by nearly 80 percent to P431.27 billion in February from P239.9 billion in the same month last year.

On the other hand, the industry’s loan book shrank by 3.2 percent to P10.56 trillion in February from P10.91 trillion a year ago as banks remain risk averse due to uncertainties about the paying capacity of borrowers, as well as the lack of demand.

Data from the central bank showed past due loans, referring to all types of loans left unsettled beyond payment date, jumped by 71.3 percent to P551.47 billion in February from P321.86 billion a year ago. This was equivalent to a past due ratio of 5.21 percent.

Likewise, the industry’s restructured loans amounted to P200.99 billion in February or 4.5 times the P45.04 billion recorded in the same period last year, translating to a restructured loan ratio of 1.9 percent.

In anticipation of rising defaults brought about by uncertainties due to the global health crisis, the industry allowance for credit losses almost doubled to P431.27 billion from P218.78 billion, representing a loan loss reserve ratio of 3.53 percent.

This helped improve the industry’s NPL coverage ratio to 86.64 percent from 91.2 percent.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., attributed the latest increase in the industry’s gross NPL ratio to the lapse of the loan payment extension provided under Republic Act 11494 or Bayanihan to Recover As One Act (Bayanihan 2).

Ricafort also cited the continued economic slowdown largely brought about by the COVID-19 pandemic, which reduced production, sales, net income, employment and livelihood of hardest-hit industries.

“For the coming months, the hard lockdowns in NCR Plus could still result in significant reduction in business activities that entail some foregone sales income losses for the hardest hit sectors, thereby could fundamentally entail some pick up in NPLs,” Ricafort said.