Banks’ NPL ratio hits fresh 11-year high of 4.21% in March

MANILA, Philippines — The gross non-performing loan (NPL) ratio of the banking sector rose for the third straight month to a fresh 11-year high of 4.21 percent in March from 4.08 percent in February as soured loans continued to soar amid the resurgence of COVID-19 cases, according to the Bangko Sentral ng Pilipinas (BSP).

The asset quality of Philippine banks has been deteriorating as the country slipped into recession last year with a record gross domestic product (GDP) contraction of 9.6 percent.

The latest NPL ratio was the highest since the 4.25 percent recorded in August 2009. It was also higher than the 2.25 percent recorded in March last year

Banks have been accumulating past due loan accounts, as well as bad debts due to the impact of the COVID-19 pandemic.

The banking sector’s soured loans surged by 80 percent to P448.59 billion as of end- March from P249.18 billion in the same period last year.

The loan book of Philippine banks contracted by 3.9 percent to P10.66 trillion as of end-March from P11.09 trillion in the same period last year as banks remained risk averse while loan demand remained weak due to uncertainties brought about by the pandemic.

This despite the aggressive 200-basis-point cut in interest rates by the BSP, which brought the benchmark rate to an all-time low of two percent last year to cushion the impact of the COVID-19 pandemic on the economy.

Data from the central bank also showed past due loans or  those left unsettled beyond payment date surged by 65.7 percent to P568.97 billion as of end-March from P343.33 billion a year ago. This is equivalent to a past due ratio of 5.34 percent.

Likewise, the industry’s restructured loans amounted to P232.55 billion in March or almost five times the P46.83 billion booked in the same month last year, translating to a restructured loan ratio of 2.18 percent.

In anticipation of rising defaults due to the impact of the pandemic-induced recession, the banking sector’s allowance for credit losses soared by 63.7 percent to P372.72 billion in end-March from P227.63 billion a year ago.

This translated to a NPL coverage ratio of 83.09 percent in end-March.

On the other hand, the industry’s non-performing assets (NPA) surged by 55.5 percent to P565.93 billion in end- March from P363.91 billion a year ago.