Philippine banks lag in improving credit conditions

Lawrence Agcaoili - The Philippine Star

MANILA, Philippines — Philippine banks are still lagging in terms of improving credit conditions despite an increasing effort to contain the COVID-19 pandemic across the globe, according to S&P Global Ratings.

In a report, the debt watcher said the Philippines, Indonesia, Malaysia and Thailand continue to lag geographically in terms of credit conditions.

“Credit conditions are strengthening as COVID-19 is increasingly contained. However, improvements are uneven across sectors and borrower profiles,” S&P said.

Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) showed loans disbursed by big Philippine banks contracted by five percent in April, the fifth month in a row since December last year.

In its base-case scenario, S&P said most rated non-financial corporates in Asia-Pacific may fully recover from the impact of the pandemic only by 2022.

The debt watcher also said credit losses are trending down for most countries after taking pain up front through higher provision for bad debts.

However, S&P pointed out that non-performing assets (NPAs) would likely remain elevated compared with the pre-COVID levels for most countries in Asia-Pacific.

“While banks made significant provisions for likely losses from the NPLs generated last year, it could take them many years to resolve such non-performing loans,” it said.

Credit losses are set to fall across most Asia-Pacific banking systems as targeted assistance to stretched borrowers would likely continue in many places until pandemic-related challenges substantially abate.

“Asia-Pacific banks should safely avoid a cliff effect even as extensive relief measures are progressively removed,” said S&P Global Ratings credit analyst Sharad Jain.

Moratoriums on loan repayments – together with fiscal, monetary and policy support – have helped cushion the blow to borrowers in Asia-Pacific from the COVID-19 outbreak and containment measures.

Repayment moratoriums have fallen to less than five percent of system loans for a number of Asia-Pacific countries from a range of six to 80 percent at the height of the pandemic.

Earlier, BSP Governor Benjamin Diokno said the NPL ratio of Philippine banks may climb further to over six percent this year, but reiterated the impact of the COVID-19 pandemic on the overall condition and performance of the banking system remains manageable.

The gross NPL ratio of Philippine banks rose for the third straight month to hit a fresh 11-year high of 4.21 percent in March from 2.25 percent in the same period last year as soured loans continued to soar amid the resurgence of COVID-19 infections.

Soured loans of Philippine banks jumped by 80 percent to P448.59 billion in March from P249.18 billion in the same month last year, while allowance for credit losses soared by 63.7 percent to P372.72 billion from P227.63 billion.



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