The Philippines: Banks’ bad loans rise for 10th straight month

  • BAD DEBTS held by big banks continued to edge higher for the 10th straight month in Nov 20, as borrowers have difficulty in repaying loans amid the economic slowdown.
  • Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the gross nonperforming loans (NPL) ratio hit 3.81% as of end-Nov 20, picking up from the 3.72% in Oct 20 as well as the 2.19% logged Nov 19.
  • Based on BSP projections, the industry-wide bad loan ratio could reach 4.6% by end-2020. It peaked at 17.6% in 2002 in the aftermath of the Asian financial crisis.
  • Soured loans reached PHP404.687bn as of end-Nov 20, up 2.43% from the PHP394.432bn in Oct 20 and surging 73.6% from the PHP233.064bn recorded in Nov 19.
  • NPLs cover debts left unpaid at least 30 days beyond the due date, which are considered as risky assets as these have high risk of default.
  • Industry-wide NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, settled at 87.16%, lower than the 88.03% the prior month as well as the 91.51% in Nov 19.
  • Banks tightened their credit standards to guard against bad loans amid the crisis. Outstanding loans disbursed by big banks grew by 1.9% y/y in Oct 20, the slowest since the same print was logged in Sep 06.
  • Based on the Banking Sector Outlook Survey released last week, lenders remain wary of the impact of the crisis on the loan portfolio.
  • Majority of respondent banks said they expect NPL ratio to go beyond 3% in 2021 until 2022. Meanwhile, nearly half of banks estimate restructured loans will make up 3-5% of the total portfolio.
  • The FIST measure, under reconciled House Bill No. 6816 and the Senate Bill No. 1849, has already been approved by the Bicameral Conference Committee. The bill would enable banks to offload bad debts to keep credit growth going.
  • Meanwhile, the CREATE bill will be scrutinized by the bicameral panel when session resumes on 18 Jan 21.

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