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Home Investing News

PHL bad loan ratio falls to 16-month low

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July 6, 2022
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PHL bad loan ratio falls to 16-month low
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A worker inspects one thousand pesos bills inside a money changer in Manila, Philippines March 23, 2016. — REUTERS

By Keisha B. Ta-asan

SOURED LOANS held by Philippine banks declined for a third straight month in May, bringing the nonperforming loan (NPL) ratio to its lowest in 16 months amid improved economic conditions.   

Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) on Wednesday showed the banking industry’s gross NPL ratio stood at 3.75%, falling from 4.49% a year ago and 3.93% in April.

The May NPL ratio is the lowest since 3.72% in January 2021.

Bad loans declined by 10.5% to P429.106 billion in May from P479.481 billion a year ago. It was also 4.09% lower than P447.438 billion in April.

Loans are considered nonperforming once they are unpaid for at least 30 days after the due date. They are deemed as risk assets given borrowers are unlikely to settle such loans.

“Improved economic conditions helped firms and households generate enough cash flow to service debt obligations. This in turn helped lower overall NPL,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.   

The government placed Metro Manila and some provinces under the most lenient alert level starting March as the number of coronavirus disease 2019 (COVID-19) infections plunged.

“As the economy continues its recovery, the outlook for the banking sector also improves. Not just in terms of nonperforming loans but also its ability to lend to businesses,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

As bad loans declined, the lenders’ gross loan portfolio expanded by 7.3% to P11.44 trillion in May from P10.66 trillion a year ago. It also edged up by 0.4% from the P11.39 trillion in April.

Meanwhile, past due loans dropped by 14.2% to P508.508 billion in May from P593.346 billion a year ago. This brought the ratio to 4.44% from 5.56% a year ago.

Restructured loans climbed by 27.78% to P336.723 billion from P263.514 billion a year ago. These borrowings accounted for 2.94% of banks’ loan portfolio as of May.

In May, banks continued to boost their loan loss reserves to P406.61 billion from P383.39 billion a year ago. This brought the ratio to 3.55%, slightly lower than 3.59% a year ago.

The industry’s NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, improved to 94.76% from 79.96% a year ago.

“The government’s push to support the MSME (micro, small, and medium enterprises) sector and programs and policies to make sure businesses — domestic or foreign -— thrive in the country, will contribute to improvements in the banking sector and the economy,” Ms. Velasquez said.   

Mr. Mapa said he expects conditions to improve if economic activity remains robust.

The BSP 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.

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