PHL banks’ NPL ratio falls to 23-month low

By Keisha B. Ta-asan

SOURED LOANS held by banks fell for a sixth straight month in August, pushing the non-performing loan (NPL) ratio to a 23-month low amid the economy’s continued reopening.

However, the decline in NPLs may slow in the coming months due to the recent rate hikes by the Bangko Sentral ng Pilipinas (BSP), economists said.

Latest data from the BSP showed that the Philippine banking sector’s gross NPL ratio fell to 3.53% at the end of August from 3.57% at the end of July and 4.51% in the same month last year.

The NPL rate in August was the lowest in 23 months or since 3.51% in September 2020.

Bad loans fell 15% year-on-year to P418 billion at the end of August. It was also 0.5% lower than the P420.254 billion seen at the end of July.

Loans are considered in default when they remain unpaid for at least 90 days after the due date. They are considered risk assets as borrowers are unlikely to settle such loans.

“Continued improvement in cash flows for households and fiRms due to economic reopening helped borrowers service payments and thus NPLs continued to slide, ING Bank NV Manila senior economist Nicholas Antonio T. Mapa said in an email on Wednesday.

Metro Manila and some provinces have been under the most relaxed alert level since March, which meant businesses are now allowed to operate at full capacity.

“We believe that the continuous decline in the NPL ratio is indicative of improved business conditions and a robust post-pandemic economic recovery,” China Banking Corp. chief economist Domini S. Velasquez said in a Viber message.

“The increase in economic activity as the economy reopened further likely boosted borrowers’ incomes and cash flows, enabling them to repay their loans on time,” she added.

BSP data showed banks’ gross loan portfolio grew 8.72% to P11.84 trillion in August from P10.89 trillion a year ago. It also rose 0.5% from P11.77 trillion in July.

Meanwhile, loans past due fell 14.4% year-on-year to P496.135 billion in August, bringing the ratio to 4.19% from 5.32% a year ago.

Restructured loans rose 4.4% to P319.892 billion, which accounted for 2.7% of the banks’ loan portfolio.

Banks continued to increase their loan loss reserves to P418.059 billion in August from P410.848 billion a year ago. This brought the ratio to 3.53% from 3.77% a year earlier.

The industry’s NPL coverage ratio improved to 100% from 83.52% in 2021.

However, rising interest rates may slow down the decline in bad loans.

“Going forward, we expect the NPL ratio to remain on a downward trend, but the pace of decline may slow as higher interest rates and inflation, as well as the slowdown in the economy, continue to pose credit risks,” Ms. Velasquez said.

The national consumer price index rose 6.9% year-on-year last month. It was the sixth month in a row that inflation exceeded the central bank’s target of 2-4%.

To tameetcThe BSP has raised benchmark rates by a total of 225 basis points so far this year, bringing the overnight repo rate to 4.25%.

The central bank earlier said the NPL ratio of Philippine banks may peak at 8.2% this year. The ratio stood at 3.99% at the end of December 2021 as the economy began to reopen.

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