Credit in Philippines to remain depressed

(The Philippine Star) - May 3, 2021 - 12:00am

MANILA, Philippines — Credit growth in the Philippines and five other emerging economies in Asia is likely to remain depressed over the next 12 to 18 months amid weak demand and the risk-averse stance of banks due to the COVID-19 pandemic, according to ANZ Research.

Sanjay Mathur, chief economist for Southeast Asia and India at ANZ, said banks have been tight-fisted on concerns over asset quality, durability of regulatory forbearance, and weak profitability.

“We do not anticipate a turnaround in emerging Asia’s credit cycle in the near term. Demand for credit is restrained, while supply side conditions are far from conducive, and may even turn more challenging as policy support fades,” Mathur said.

He said the concerns are not apparent in banks’ balance sheets yet because of unprecedented regulatory relief. “The real damage will become clear only after regulatory relief is withdrawn,” he said.

“The deceleration has come about despite aggressive monetary accommodation with the current real policy rate well below the average over the previous three years. This deceleration is also not confined to any particular sector, but spans across businesses and households,” Mathur said.

Bank lending in the country has been declining as the economy stood still when Luzon was placed under enhanced community quarantine in mid-March last year to slow the spread of COVID-19.

Banks remain wary about the capacity of borrowers to pay, while borrowers have yet to tap the massive P2 trillion liquidity unleashed by the COVID-19 response measures of the central bank, including the 200-basis-point cut in the benchmark interest rate to an all-time low of two percent.

“Although liquidity conditions are extremely sanguine, the deterioration in the risk profile of borrowers is a major handicap. The uncertain macroeconomic outlook does not portend an improvement anytime soon,” Mathur said.

According to ANZ, the deterioration in the risk profile of borrowers suggests that the damage could be significant.

Preliminary data showed the gross non-performing loan (NPL) ratio of Philippine banks rose to an 11-year high of 4.08 percent in February from 3.72 percent in January.

The industry’s NPLs or past due loan accounts where the principal or interest is unpaid for 30 days or more surged by 79.8 percent to P431.27 billion in February from P239.9 billion in the same month last year, while past due loans – referring to all types of loans left unsettled beyond payment date – jumped by 71.3 percent to P551.47 billion from P321.86 billion.

Likewise, banks restructured P200.99 billion worth of loans in February, or 4.5 times the P45.04 billion in the same month last year.

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