Rising bad bank loans a ‘risk’ in Philippines amid high interest rates — report
MANILA, Philippines — Growing bad debts held by banks at a time interest rates have steeply risen in the past year could pose a risk to several emerging markets, including the Philippines, Oxford Economics said.
In a report dated February 7, the Oxford-based economic research company said risks of rising non-performing loans are “especially acute” in emerging markets where local interest rates have risen sharply since early 2018.
“These include Turkey, Argentina, Pakistan, the Philippines and Indonesia,” Oxford Economics said.
Central bank data show NPLs of universal and commercial banks totalled P117.929 billion in November last year, up 10.5 percent from P106.712 billion in the same month in 2017.
NPLs are loans left unpaid for at least 30 days beyond due date. These are considered risky assets given lower chances for borrowers to settle them, thus, entailing losses for lenders concerned.
FROM BUSINESSWORLD: Big lenders’ bad debts grow, but asset quality improves
In a bid to fight capital outflow and keep inflation in check, the Bangko Sentral ng Pilipinas lifted its policy rate by a cumulative 175 basis points last year — among the most aggressive tightening in Asia — before slamming on the brakes in December. On Thursday, the central bank left the key rate untouched at 4.75 percent, with soaring prices seen settling within target this year.
“Our analysis suggests that the damage to EM growth from high debt is already visible and risks becoming more so given the financial shocks last year and slowing global growth,” Oxford Economics said.
“The bigger risk is probably that EM banks’ NPLs will spike. EM NPLs have already risen significantly since 2015, from less than 4 percent of the total to around 5 percent – in sharp contrast to advanced economies, where NPLs have declined,” it added.
“Most emerging markets have had credit booms in the last five years, and history suggests that up to two-thirds of such booms end in growth slowdowns or financial crises.” — Ian Nicolas Cigaral
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