The Philippines: Banks’ bad loans hit 11-year high

  • The asset quality of Philippine banks further deteriorated for the second straight month in Feb 21 as the industry’s gross non-performing loan (NPL) ratio rose to 4.08%, the highest in more than 11 years due to the impact of the COVID-19 pandemic, according to the Bangko Sentral ng Pilipinas (BSP).
  • The latest NPL ratio was sharply higher than the 3.72% recorded in Jan 21 and 2.2% in Feb 20.
  • The last time the gross NPL ratio breached the 4% level was in Jul 10 at 4.03%. This was also the highest since the industry booked a gross NPL ratio of 4.09% in Oct 09.
  • Based on BSP data, the banking industry’s soured loans surged by nearly 80% y/y to PHP431.27bn in Feb 21 from PHP239.9bn in Feb 20.
  • On the other hand, the industry’s loan book shrank by 3.2% y/y as banks remain risk averse due to uncertainties about the paying capacity of borrowers, as well as the lack of demand.
  • Data from the central bank showed past due loans, referring to all types of loans left unsettled beyond payment date, jumped by 71.3% y/y in Feb 21. This was equivalent to a past due ratio of 5.21%.
  • Likewise, the industry’s restructured loans amounted to PHP200.99bn in Feb 21 or 4.5 times the PHP45.04bn recorded in Feb 20, translating to a restructured loan ratio of 1.9%.
  • In anticipation of rising defaults brought about by uncertainties due to the global health crisis, the industry allowance for credit losses almost doubled to PHP431.27bn from PHP218.78bn, representing a loan loss reserve ratio of 3.53%.
  • This helped improve the industry’s NPL coverage ratio to 86.64% from 91.2%.
  • Michael Ricafort, chief economist at Rizal Commercial Banking Corp., attributed the latest increase in the industry’s gross NPL ratio to the lapse of the loan payment extension provided under Republic Act 11494 or Bayanihan to Recover As One Act (Bayanihan 2).
  • Ricafort also cited the continued economic slowdown largely brought about by the COVID-19 pandemic, which reduced production, sales, net income, employment and livelihood of hardest-hit industries.

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