Bad loans soar 61% in August

MANILA, Philippines — The soured loans of Philippine banks continued to surge, jumping by 61.3 percent to P491.93 billion in end-August from a year-ago level of P305 billion, but the industry’s non-performing loan (NPL) ratio remained steady at a 13-year high of 4.51 percent as lending finally recovered after eight straight months of contraction, according to the Bangko Sentral ng Pilipinas (BSP).

The gross NPL ratio of the local banking industry in August was still the highest since the 4.52 percent recorded in September 2008. The figure was also higher than the 2.84 percent recorded in the same month last year.

The asset quality of the industry has been deteriorating as banks have been piling up NPLs or past due loan accounts as well as bad debts due to the impact of the pandemic.

Past due loans are accounts where the principal or interest is unpaid for 30 days or more after due date.

As of end-August, the past due loans had risen by 2.1 percent to P579.6 billion from P567.88 billion, for a past due ratio of 5.32 percent.

Likewise, the industry’s restructured loans amounted to P334.62 billion in August or 3.2 times the P104.51 billion booked in the same month last year, translating to a restructured loan ratio of 3.07 percent.

In anticipation of rising defaults due to the impact of the pandemic-induced recession, the banking sector’s allowance for credit losses went up by 25.5 percent to P410.848 billion from P327.418 billion. This translated to an industry’s NPL coverage ratio of 83.52 percent in end-August from 107.35 percent in end-August last year.

Amid the improved sentiment due to the continued rollout of COVID vaccines and the gradual reopening of the economy, bank lending finally inched up by 1.4 percent to P10.9 trillion in end-August from P10.75 trillion a year ago, ending eight straight months of contraction.

On the other hand, the industry’s non-performing assets (NPA) jumped by 46 percent to P610.15 billion from P417.96 billion, resulting in an NPA to gross asset ratio of three percent.

BSP Governor Benjamin Diokno earlier said the industry’s NPL ratio may range from five to six percent this year, but is not likely to peak until next year amid the resurgence of COVID cases.

The BSP chief said the NPL ratio of Philippine banks would double next year, but would remain at single-digit levels compared to the ratio recorded during the Asian financial crisis.

“We estimate that the NPL ratio is likely to peak at 8.2 percent in 2022, which is twice the current NPL ratio, but will decline in the years thereafter. This level is significantly lower than what the banking system experienced during the Asian financial crisis,” Diokno said.