Banks’ bad loans ratio eases to 6-month low

by Lawrence Agcaoili – The Philippine Star, 11 Dec 2021

MANILA, Philippines — The asset quality of Philippine banks improved for the second straight month in October as the industry’s gross non-performing loan (NPL) ratio eased to a six-month low of 4.42 percent from the revised 4.44 percent in September, according to the Bangko Sentral ng Pilipinas (BSP).

The banking sector’s NPL ratio has been declining after hitting a 13-year high of 4.51 percent In July and August as credit growth continued to pick up amid the gradual reopening of the economy and further easing of COVID lockdown measures.

Preliminary data from the central bank showed the gross NPL ratio of the banking industry in October was the lowest since the 4.35 percent recorded in April.

Philippine banks disbursed P10.97 trillion worth of loans from January to October, 3.3 percent higher than the P10.61 trillion recorded in the same period last year.

During the period, the industry’s soured loans increased by 4.6 percent to P413.37 billion from a year-ago level of P395.06 billion. The monthly NPLs have been rising steadily since January this year, but started to decline starting September.

The asset quality of the industry has been deteriorating as 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 as well as bad debts due to the impact of the pandemic.

As of end-October, past due loans, or those loans left unsettled beyond payment date, recorded a double-digit increase of 10.3 percent to P565.78 billion from P512.89 billion a year ago, resulting in past due ratio of 5.16 percent.

Likewise, the industry’s restructured loans amounted to P337.82 billion in October or 2.5 times the P137.08 billion recorded in the same month last year, translating to a restructured loan ratio of 3.08 percent.

Due to rising defaults, the banking sector’s allowance for credit losses went up by 18.8 percent to P413.37 billion from P347.77 billion, for a higher loan loss reverse level of 3.77 percent.

On the other hand, the industry’s NPL coverage ratio hit 85.41 percent in end-October from 88.03 percent a year ago.

Meanwhile, the industry’s non-performing assets grew by 18.5 percent to P602.51 billion from P508.41 billion, resulting in an NPA to gross asset ratio of 2.94 percent.

BSP Governor Benjamin Diokno earlier said the industry’s NPL ratio may peak at 8.2 percent next year from a range of five to six percent this year.

“We estimate that the NPL ratio is likely to peak at 8.2 percent in 2022, which is twice the current NPL ratio, but will decline in the years thereafter. This level is significantly lower than experience, the banking system during the Asian financial crisis,” Diokno said.