Banks’ bad loans ratio dips to 3.75%

MANILA, Philippines — The share of bad debts to the total loans of Philippine banks eased for the third straight month to a 16-month low of 3.75 percent in May from 3.93 percent in April as the country continues to recover from the pandemic-induced recession, according to the Bangko Sentral ng Pilipinas (BSP).

This was the lowest non-performing loan ratio for the country’s banking industry since the 3.72 percent recorded in January last year. It was also lower than the 4.49 percent NPL ratio recorded in May last year.

The industry’s NPL ratio peaked at a 13-year high of 4.51 percent in July and August last year.

Banks’ bad loans fell by 10.5 percent to P429.11 billion in May from P479.48 billion in the same month last year.

On the other hand, the industry’s loan book grew at a faster rate of 6.9 percent to P11.44 trillion in May from P10.67 trillion a year ago amid the further reopening of the economy.

The country’s gross domestic product (GDP) booked a stronger-than-expected growth of 8.3 percent in the first quarter after the Philippines exited the pandemic-induced recession with a 5.7 percent expansion in 2021.

The industry’s past due loans, referring to all types of loans left unsettled beyond payment date, declined by 14.3 percent to P508.51 billion in May from P593.35 billion a year ago. This translated to a past due ratio of 4.44 percent.

The banking industry’s restructured loans jumped by 27.8 percent to P336.72 billion in May from P263.51 billion in the same month last year, translating to a restructured loan ratio of 2.94 percent.

Meanwhile, banks’ allowance for credit losses rose by six percent to P406.62 billion from P383.39 billion, resulting in a higher loan loss reserve level of 3.55 percent.

This translated to a higher NPL coverage ratio of 94.76 percent as of end-May from 79.96 percent in end-May last year.

The BSP earlier said the NPL ratio of Philippine banks may peak at 8.2 percent for this year.

Despite the robust growth in the first quarter, the Cabinet-level Development Budget Coordination Committee has further adjusted this year’s growth target to a range of 6.5 to 7.5 percent due to elevated inflation amid the impact of Russia’s invasion of Ukraine.

The interest rate liftoff of the Monetary Board after it delivered a 25-basis-point hike last May 19 followed by another 25 basis points on June 23 to confront rising inflation could dampen lending activities of banks.

The back-to-back rate hikes brought the benchmark interest rate to 2.50 percent from an all-time low of two percent.

BSP Governor Felipe Medalla said Tuesday that interest rates are likely to increase by another 100 basis points, bringing the overnight reverse repurchase rate to 3.50 percent by the end of 2022.