The Philippines: Banks see NPL ratio peaking at 6% to 7%

  • The non-performing loan (NPL) ratio of the banking sector is seen peaking at 6 to 7% due to the impact of the pandemic, according to the Bankers Association of the Philippines.
  • BAP president Cezar Con-sing said the projected NPL ratio is lower compared to the levels recorded during the Asian financial crisis in 1997 and the global financial crisis in 2008.
  • The bad loan ratio of the banking industry has steadily increased since the 2.16% recorded in Jan 20 due to the impact of the pandemic.
  • “It will be a multiple of what we saw pre-COVID, but only about a third in percentage terms of what we experienced two decades ago. For this we have to thank aggressive monetary policy and low interest rates, a firm peso and a better capitalized banking system,” Consing said.
  • The industry’s NPL ratio peaked at 16.9% in 2001 after the Asian financial crisis, but declined significantly due to several reforms adopted by the BSP.
  • In anticipation of rising defaults brought about by uncertainties due to the global health crisis, data released by the central bank showed the industry allowance for credit losses surged by 65.4% y/y in end-Nov, representing a loan loss reserve ratio of 3.32%.
  • Despite the increase, NPL coverage ratio declined to 87.16% in Nov 20 from 91.51% in Nov 19.
  • The level of bad debts and NPL ratio of the sector are seen rising further as the debt holiday extended by a new law expired in Dec 20.

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