MANILA, Philippines — The share of bad debts to the banking sector’s total loan book climbed for the second straight month in February amid slower credit growth arising from the series of aggressive rate hikes delivered by the Bangko Sentral ng Pilipinas (BSP).
Preliminary data from the central bank showed that the non-performing loan (NPL) ratio of Philippine banks inched up by 3.31 percent in February from 3.28 percent in January.
The industry’s NPL ratio improved steadily to a two-year low of 3.17 percent last December after hitting 4.24 percent last year. The ratio peaked at 4.51 percent in July and August 2021 as the Philippine economy struggled due to the impact COVID-19 pandemic.
According to the BSP data, bad debts of Philippine banks declined by 13 percent to P411.18 billion in February from P472.66 billion in the same month last year.
However, the industry’s soured loans have increased for the past two months from P398.79 billion in December and P405.14 billion in January.
On the other hand, the growth of the sector’s total loan portfolio has been slowing over the past few months as the BSP Monetary Board has raised interest rates by 425 basis points since May last year to tame inflation and stabilize the peso.
Philippine banks booked an 11.3 percent rise in loan disbursements to P12.41 trillion from P11.15 trillion amid strong demand from the reopening of the economy with the lifting of strict COVID-19 quarantine and lockdown protocols.
The banking sector’s past due loans decreased by 10 percent to P502.11 billion from P557.96 billion, while restructured loans slipped by 6.8 percent to P320.54 billion from P344.08 billion.
Meanwhile, Philippine banks reported a rise in loan loss reserves to P431.52 billion in February from P407.03 billion in the same month last year. This translated to a loan loss reserve level of 3.48 percent and an NPL coverage ratio of 104.95 percent.
The BSP earlier projected that the NPL ratio of Philippine banks peaking at 8.2 percent last year.
So far, the BSP Monetary Board has increased key policy rates by 425 basis points last year, bringing the benchmark rate to a 16-year high of 6.25 percent from an all-time low of two percent.
This helped cool down inflation to a six-month low of 7.6 percent in March from 8.6 percent in February, bringing the average to 8.3 percent in the first quarter of the year – still above the BSP’s two to four percent target.
S&P Global Ratings sees the NPL ratio of Philippine banks settling at 3.3 percent this year as the sector is likely to post a single-digit credit growth amid higher borrowing costs.
According to the debt watcher, the rising interest rate environment amid persistently high inflation will make a dent on credit growth.
On the other hand, Fitch Ratings expects the NPL ratio of Philippine banks to remain steady at around 3.5 percent this year, as the adequate financial buffers of large corporate borrowers and a supportive economy largely offset the risks.