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Banks’ NPL ratio falls to 26-month low in Oct.

PHILIPPINE STAR/ KRIZ JOHN ROSALES

THE PHILIPPINE BANKING industry’s bad loans fell for the eighth straight month in October, bringing the nonperforming loan (NPL) ratio to its lowest in 26 months, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Based on BSP data, banks’ gross NPL ratio dropped to 3.41% in October, from 4.42% a year ago and 3.42% in September.    

The October bad loan ratio was the lowest in more than two years or since 2.84% in August 2020.    

Soured loans declined 14.9% to P411.632 billion in October, from P483.98 billion a year earlier. This was also 0.7% lower than P414.606 billion in September.

Loans are considered nonperforming once they remain unpaid for at least 90 days after the due date. They are deemed as risk assets as borrowers are unlikely to settle these loans.

“Falling NPLs is consistent with the nearly full reopening of the economy,” Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said in a Viber message.

Since March this year, Metro Manila and most provinces in the country have been under the most lenient alert level, allowing businesses to operate at full capacity.

“With output finally returning to pre-pandemic (levels) and with more businesses restoring a healthy balance in their cash flows, fewer have difficulty meeting their loan obligations,” Mr. Neri said.

According to BSP data, banks’ gross loan portfolio expanded by 10% to P12.06 trillion in October from P10.96 trillion a year ago. However, it dipped 0.4% from P12.11 trillion in September.   

Past due loans decreased by 13.9% to P486.753 billion from P565.777 billion a year earlier. These borrowings were equivalent to 4.03% of the industry’s total loan portfolio, down from 5.16% a year earlier.

Meanwhile, restructured loans slipped 3.1% to P327.355 billion from P337.818 billion in October last year. This brought the ratio to 2.71% in October, from 3.08% a year ago.

Banks continued to beef up loan loss reserves to P429.204 billion, up by 3.8% from P413.376 billion. With this, its ratio stood at 3.56% in October.

Lenders’ NPL coverage ratio — which shows the allowance for potential losses due to bad loans — surged to 104.27% from 85.41% a year earlier.

The month-on-month easing of the NPL ratio reflected the government’s efforts to bring the economy to greater normalcy, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

He cited measures such as the voluntary wearing of face masks, easing of travel restrictions, and the resumption of face-to-face schooling in August.

Mr. Ricafort said this allowed borrowers greater capacity to repay loans, as more jobs were created and revenues increased.

“Increased confidence by borrowers such as consumers, businesses, industries, and other institutions increased loan growth among the fastest in nearly four years,” he said.

Earlier data released by the central bank showed bank lending continued to grow at its fastest pace in nearly four years, expanding by 13.9% year on year in October to P10.56 trillion. This was slightly quicker than the 13.4% loan growth in September.

“The improving NPL numbers also seem to suggest that as long as credit conditions improve, we don’t need ultra-low interest rates to keep borrowers afloat,” Mr. Neri said. 

The BSP has raised benchmark interest rates by 300 basis points (bps) so far this year, bringing the overnight reverse repurchase rate to 5% to tame inflation.

Headline inflation at the national level rose to 8% year on year in November from 7.7% in October. It was the eighth straight month that inflation exceeded the central bank’s 2-4% target.

A BusinessWorld poll last week showed 14 out of 15 analysts expect the Monetary Board to continue hiking borrowing costs at its Dec. 15 meeting.

For 13 analysts, the central bank may deliver a 50-bp rate increase, while one economist sees a 25-bp hike.

BSP officials earlier said Philippine banks’ NPL ratio may peak at 8.2% in 2022.

As of end-December 2021, the ratio stood at 3.99%. — Keisha B. Ta-asan

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