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, bringing the nonperforming 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 the Philippine banking sector’s gross NPL ratio inched down to 3.53% as of end-August from 3.57% as of end-July and 4.51% in the same month last year. 

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

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

Loans are considered nonperforming once they remain unpaid for at least 90 days after the due date. They are deemed as risk assets given borrowers are unlikely to settle such loans.

“Continued improvement of cash flows for households and firms due to economic reopening helped borrowers service payments and thus NPLs continued to slide,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail on Wednesday.   

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

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

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

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

Meanwhile, past due loans fell by 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 by 4.4% to P319.892 billion, which accounted for 2.7% of banks’ loan portfolio. 

Banks continued to beef up 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 the decline in bad loans.

“Moving 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 consumer price index at the national level climbed by 6.9% year on year last month. It was the sixth straight month that inflation exceeded the central bank’s 2-4% target.

To tame inflation, the BSP has raised benchmark interest rates by a total of 225 basis points so far this year, bringing the overnight reverse repurchase rate to 4.25%.

The central bank earlier 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, as the economy started to reopen.