February 9, 2023

Filipino Guardian

Sentinels of Filipino Free Press

The NPL ratio continues to decline in September

Soured loans held by big banks fell for the seventh straight month in September as the economy opened up further. — FILIPINO STAR/ WALTER BOLLOZOS

By Keisha B. Ta-asan, reporter

BAD DEBT held by major banks fell for the seventh straight month in September, taking the non-performing loans (NPL) ratio to its lowest level in 25 months as the economy continued to recover.

The banking industry’s non-performing loans fell 14.6% yoy to P415.225 billion in September, compared to P486.362 in the same month last year, based on the latest Bangko Sentral ng Pilipinas (BSP) data.

The September figure was also down 0.6% from August’s P418 billion.

This brought the system-wide NPL ratio to 3.43% in September, after 3.53% in August and 4.44% in September 2021.

September’s NPL ratio was the lowest in 25 months, or since the 2.84% recorded in August 2020.

Loans are considered non-performing if a borrower has not paid at least 90 days after the due date. These non-performing loans pose risks to the quality of banks’ assets as borrowers are likely to default on these debts.

“Lower reported NPLs are still primarily driven by the reopening history of the PHL economy this year. As more companies return to pre-pandemic performance, fewer companies will have to delay paying their obligations,” Emilio S. Neri, Jr., lead economist at the Bank of the Philippine Islands (BPI) said in a Viber message.

Since March, Metro Manila and most provinces have been under the mildest alert level that allows businesses to operate at full capacity.

Banks’ gross loan portfolio rose 10.3% to 12.09 trillion pesos in September from 10.96 trillion pesos a year ago, according to BSP data. It was also up 2.1% from August’s P11.84 trillion.

Meanwhile, delinquent loans fell 14.5% to P488.714 billion in September from P571.597 billion in 2021, taking the current rate to 4.04% from 5.21% a year earlier.

Restructured loans, which accounted for 2.76% of banks’ loan portfolios, fell 1.7% to P333.615 billion in September from P339.273 billion a year ago.

Banks continued to build loan default reserves to P424.643 billion in September, from P410.605 billion a year ago, bringing the ratio to 3.51% from 3.74% a year earlier.

The banking industry’s NPL coverage ratio improved from 84.42% in 2021 to 102.3% in September.

China Banking Corp. chief economist Domini S. Velasquez said banks’ non-performing loans could decline further in the coming months as companies continue to recover.

“Loans to productive sectors/industries have seen positive growth rates, with the exception of a few such as education and housing. These sectors will likely help drive the full resumption of face-to-face classes and increases in tourist arrivals,” she said.

The school year began on August 22 for most schools. As of this month, public schools have been mandated to return to face-to-face classes, while private schools may continue to take a mixed approach.

The number of tourists is also expected to increase before the holidays.

Mr Neri pointed out that there is a risk that the NPL ratio could rise if elevated inflation and other global headwinds weigh on economic growth.

“In an adverse scenario, potential triggers for an increase in NPLs are liquidity issues that some heavily indebted domestic companies may encounter. These companies have been lured by artificially low interest rates into aggressive acquisitions by loading their balance sheets with significant debt,” he said.

Headline inflation at the national level rose to 7.7% in October from 6.9% yoy in September. It was the seventh month in a row that inflation exceeded the central bank’s target of 2-4%.

To tame inflation, the BSP has hiked interest rates by 225 basis points (bps) so far this year, taking the overnight reverse repo rate to 4.25%. The Monetary Board is widely expected to hike 75 basis points at the November 17 policy meeting.

GNP officials previously said that Philippine banks’ NPL ratio could peak in 2022 at 8.2%.

The ratio was 3.99% at the end of December 2021.