Bad loans to ease until 2024 — Moody’s

NONPERFORMING loans (NPL) in the Philippine banking industry may continue to ease in the coming months, an analyst from Moody’s Investors Service said on Thursday.

“As for NPL ratio, we actually think that 4.5% (in 2021) is the peak for NPL and we think that it will continue to slowly go down over the next one to two years,” Moody’s Investors Service Financial Institutions Group Analyst Joyce Ong said at a briefing on Thursday.

“If you look at the NPL ratio of the banks, there has been a rapid buildup because of the pandemic and peaking at 4.5% at the end of July last year,” Ms. Ong said.

“But since then, with the reopening of the economy in the second half last year, we’ve seen a decline in NPL ratio because of the rebound of economic activities that really slow the whole formation of that loans,” she added.

The banking industry’s soured loan ratio fell for a fifth straight month in July to its lowest in almost two years as bad debt continued to decline, latest central bank data showed.

The July ratio was the lowest since 3.51% in September 2020.

Bangko Sentral ng Pilipinas (BSP) data showed banks’ past due loans dropped by 14.3% to P491.289 billion from P573.785 billion a year ago. This brought its share in total loans to 4.17% from 5.31% a year ago.

Loans are considered nonperforming once they remain unpaid for at least 30 days after the due date. They are deemed as risk assets given borrowers are unlikely to settle such loans.

“We do expect that going forward. This trend will continue in tandem with the economic recovery that we will see in the Philippines. But having said that, [there’s] rising inflation, interest rates and also global economic uncertainty,” Ms. Ong said, adding that inflation will pose risks to banks in the country.

The BSP increased its overnight borrowing rate by 50 basis points (bps) to 4.25% and its corresponding lending rate to 4.75% last week.

The Monetary Board has so far raised 225 bps this year to rein in stubbornly high inflation.

The consumer price index climbed to 6.3% year on year in August, marking the fifth straight month that inflation exceeded the BSP’s 2-4% target this year.

“We actually think that inflation would dampen the post-pandemic asset quality of banks, but we don’t expect it to derail it entirely,” Ms. Ong said.

She said post-pandemic improvements in asset quality will offset the “incremental” risk from inflation. She added that she expects inflation to ease next year, which will help support asset quality.

“If you look at restructured loans level, it’s only about 3% of the system,” she said, adding that Moody’s does not expect the number to further increase.

“We think that most of these restructured loans will eventually either [be] written off or they will actually gonna see some recovery as well,” she said.

Restructured loans climbed by 3.5% to P341.973 billion from P330.164 billion in the same month in 2021. These accounted for 2.9% of the banking system’s loan portfolio.

The industry’s NPL coverage ratio also improved to 99.16% from 82.44% the year before.

The central bank has said the NPL ratio of Philippine banks might peak at 8.2% this year. The ratio stood at 3.99% as of end-December 2021. — Keisha B. Ta-asan