NPL ratio of banks down to 3.35% in November

MANILA, Philippines — Bad debts of Philippines banks continued to fall, translating to a lower non-performing loan (NPL) ratio for nine consecutive months to hit its lowest level in more than two years, according to the Bangko Sentral ng Pilipinas (BSP).

Preliminary data showed the industry’s NPL ratio improved further to 3.35 percent in November last year from 3.41 percent in October, the lowest since the 2.85 percent recorded in August 2020.

The share of soured loans to the total loans of Philippine banks has been easing since March last year amid the further reopening of the economy as the COVID-19 quarantine and lockdown protocols in the National Capital Region (NCR) and nearby areas shifted to Alert Level 1.

As the economy struggled due to the impact of the global health pandemic, the NPL ratio of Philippine banks peaked at 4.51 percent in July and August 2021.

Aris Dacanay, economist for ASEAN at HSBC, noted that the banks in the Philippines are well capitalized and their NPLs have been declining after slightly increasing during the COVID-19 pandemic.

The industry’s bad debts fell by 15.2 percent to P408.1 billion in end-November last year from P481.32 billion in end-November 2021, while loan growth accelerated to 10.1 percent as banks disbursed P12.2 trillion as the economy further reopened.

“Philippine banks are fairly stable. The financial sector in the Philippines is very macroeconomically sound and financially ready, and this is because of the Basel III accords that the BSP is implementing,” Dacanay said.

Likewise, the banking sector’s past due loans declined by 13.2 percent to P492.53 billion from P567.51 billion, while restructured loans slipped by five percent to P327.76 billion from P344.89 billion.

On the other hand, allowance for credit losses inched up by 2.8 percent to P431.5 billion in end-November last year from P419.86 billion in end-November 2021. This translated to a loan loss reserve level of 3.54 percent and an NPL coverage ratio of 105.73 percent.

The BSP earlier projected that the NPL ratio of Philippine banks would accelerate and peak at 8.2 percent for this year.

After a series of aggressive rate hikes by the BSP last year, credit growth eased to 13.7 percent in November last year from 13.9 percent in October as loans disbursed by big banks reached P10.64 trillion from P9.27 trillion.

The Philippines emerged from the pandemic-induced recession with a gross domestic product (GDP) growth of 5.7 percent last year after shrinking by 9.6 percent in 2020 when the economy stalled due to strict COVID-19 lockdowns.

It sustained the momentum with a GDP expansion of 7.7 percent from January to September last year, slightly above the 6.5 to 7.5 percent target set by the Cabinet-level Development Budget Coordination Committee.