Banks’ NPL ratio eases to six-month low in October

BANKS’ soured debt continued to decline as of October, bringing the non-performing loan ratio to its lowest since April, latest data from the Bangko Sentral ng Pilipinas (BSP) showed.

Central bank data showed the industry’s non-performing loans (NPL) inched down 0.49% to P483.98 billion as of October from P486.362 billion at end-September.

However, the end-October NPL level rose 22.5% from P395.058 billion a year earlier.

The banking industry’s loan portfolio rose 3.2% to P10.959 trillion as of October from P10.61 trillion a year earlier.

This brought the bad loan ratio to 4.42%, easing from the 4.44% in September but higher than the 3.72% a year ago. October’s NPL ratio is the lowest in six months or since the 4.35% seen as of April.

Analysts attributed the lower NPL ratio to the economy’s recovery and its impact on borrowers’ capacity to pay their debts.

“NPL could have eased slightly as business activity comes back to life, helping both corporates and households make payments on time,” ING Bank N.V.- Manila Senior Economist Nicholas Antonio T. Mapa said in an email.

“Business is slowly rebooting and income generating activities are starting to take pace. NPL declines when the economy improves because money can circulate better in the economy,” John Paolo R. Rivera, an economist at the Asian Institute of Management (AIM), said in an email.

The economy grew by 7.1% year on year in the third quarter, bringing the nine-month average to 4.9%. BSP Governor Benjamin E. Diokno said gross domestic product expansion could surpass the government’s 4-5% target this year as fourth quarter growth could reach 7% or higher.

BSP data showed past due loans increased 10.3% year on year to P565.776 billion as of October from P512.889 billion. This brought its share in banks’ lending book to 5.16% from 4.83%.

Meanwhile, restructured loans more than doubled to P337.817 billion from P137.079 billion. These loans made up 3.08% of banks’ loan portfolio, increasing from 1.29% as of October 2020.

Loan loss reserves amounted to P413.375 billion at end-October, higher by 18.8% from the P347.771 billion. This brought its share in banks’ loans to 3.77% from 3.28%.

Still, NPL coverage ratio — which indicates banks’ allowance for potential losses due to bad loans — declined to 85.41% from 88.03% a year earlier.

ING Bank’s Mr. Mapa said the NPL ratio may continue to decline if the economic rebound is sustained.

“NPL ratio can still improve as we contain the pandemic. This is a good development,” AIM’s Mr. Rivera said.

BSP officials earlier said they expect the NPL ratio to hit 5-6% by end-2021 before peaking at 8.2% by 2022. If realized, this will still be lower than the 17.6% seen in the aftermath of the Asian Financial Crisis in 2002. — Luz Wendy T. Noble