Banks’ NPL ratio at its highest in 3 months

By Luz Wendy T. Noble, Journalist

PHILIPPINE BANKS saw a slight increase in bad loans in February, reflecting the difficulties that many borrowers are still facing in repaying their debt despite the gradual reopening of the economy.

The latest data from the Bangko Sentral ng Pilipinas (BSP) showed that the gross non-performing loan (NPL) ratio of the Philippine banking sector fell from 4.14% in January to 4.24% in February.

The NPL ratio also rose from 4.08% a year earlier and is the highest since the 4.35% seen in November.

Doubtful loans in February increased by 2.38% to reach 472.664 billion pesos against 461.66 billion pesos in January. It was also 9.6% higher than the 431.266 billion pesos of bad debts a year earlier.

In February, the gross loan portfolio of banks increased by 5.4% to reach 11,150 billion pesos against 10,579 billion pesos in the same month a year ago. It edged up 0.07% from 11.142 billion pesos in January.

“The recent recovery in the NPL ratio underscores the challenges the economy is facing despite the gradual reopening of the economy,” Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila, said in an email.

Metro Manila and some provinces were placed under Alert Level 3 in January due to the spike in coronavirus disease 2019 (COVID-19) infections caused by Omicron. Restrictions have since been eased to the most lenient Alert Level 1 as the number of COVID-19 cases has fallen.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort in a Viber message said corporate borrowers as well as consumers are likely already feeling the pinch as borrowing costs have risen in recent months.

“[This] further hampered some borrowers’ ability to pay,” he said.

Delinquent loans held by lenders rose 1.17 percent to 557.964 billion pesos from 551.472 billion pesos in the same month last year. These represented 5% of loans, against 5.21% a year earlier.

Meanwhile, restructured loans amounted to 344.081 billion pesos, up 71.2% year-on-year from 200.986 billion pesos. This brought its ratio to 3.09% from 1.9%.

As bad debts piled up, banks’ provision for credit losses rose 8.9 percent to 407.035 billion pesos from 373.631 billion pesos a year earlier. This equates to 3.65% of the total loan portfolio, down from 3.53% previously.

The industry’s NPL coverage ratio stood at 86.12%, down from 86.64% in February 2021.

In the coming months, asset quality is likely to be affected by borrowing costs and faster inflation, Mr. Mapa said.

“We can expect NPL ratios to remain at current levels as borrowing faces headwinds of faster inflation and rising borrowing costs, two developments that could slow overall economic activity and limit short-term cash flow,” he said.

Inflation in March accelerated to a six-month high of 4%, already at the upper end of the central bank’s 2-4% target. This development is mainly due to soaring prices at the pump.

For his part, Ricafort said continued economic reopening and improving the job market could help improve the quality of banks’ assets.

Fitch Ratings on Tuesday reported rising business costs and an increase inflation caused by the war in Ukraine could affect growth opportunities for businesses and consumers, but is unlikely to lead to a sharp increase in loan delinquencies.

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