Asset quality trends show gradual normalization
From AB Capital's The Opening Bell: Three Moves
Event
Banking sector non-perfoming loans ratio rose to 3.33% in February, a six-month high, as bad loans reached P553.7 billion (+8% YoY, +1% QoQ). Loan growth slowed marginally while past due loans (at 4.31%) and restructured accounts (at 2.02%) continued to increase sequentially and YoY.
View
In our view, asset quality trends reflect normalization, though further deterioration remains a risk amid macro headwinds. The uptick is consistent with lagged effects of prior rate hikes and loan growth. NPL levels remain within manageable range, supported by capital buffers and steady provisioning across the system (i.e. systemwide NPL cover at 94%).
Catalyst
Key drivers include interest rates, growth momentum, and borrower cash flow. If rates stay elevated and growth remains soft, we think NPLs could drift higher toward 3.5%. A rate easing cycle would likely stabilize asset quality and improve repayment capacity.
Action
We think positioning should remain selective within banks. Favor institutions with strong coverage, stable NIMs, and diversified income. Monitor credit costs closely, as rising slippages could pressure earnings if provisioning requirements increase in a prolonged high-rate environment.
Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.
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