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NPL ratio further eases in September

Soured loans held by big banks fell for a seventh month in a row in September as the economy continued to reopen. — PHILIPPINE STAR/ WALTER BOLLOZOS

By Keisha B. Ta-asan, Reporter

BAD DEBTS held by big banks declined for a seventh straight month in September, bringing the nonperforming loan (NPL) ratio to its lowest in 25 months as the economy continued to reopen.

The banking industry’s nonperforming loans dropped by 14.6% year on year to P415.225 billion in September from P486.362 in the same month last year, based on the latest data from the Bangko Sentral ng Pilipinas (BSP).

The September figure was also 0.6% lower than the P418 billion seen in August.

This brought the systemwide NPL ratio to 3.43% in September, easing from 3.53% in August, and 4.44% in September 2021.

The September NPL ratio was the lowest in 25 months or since the 2.84% recorded in August 2020.

Loans are deemed as nonperforming once a borrower has not paid for at least 90 days after the due date. These soured loans pose risks to the asset quality of banks as borrowers are likely to default on these debts.

“Lower reported NPLs is still mostly driven by the reopening story of the PHL economy this year. With more businesses returning to pre-pandemic performance, less firms need to delay payments of their obligations,” Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said in a Viber message.

Since March, Metro Manila and most provinces have been under the most lenient alert level that allowed businesses to operate at full capacity.

According to BSP data, the gross loan portfolio of banks climbed by 10.3% to P12.09 trillion in September from P10.96 trillion a year ago. It also went up by 2.1% from the P11.84 trillion in August.

Meanwhile, past due loans fell by 14.5% to P488.714 billion in September from P571.597 billion in 2021, bringing the current ratio to 4.04% from 5.21% a year ago.

Restructured loans, which accounted for 2.76% of banks’ loan portfolio, dipping by 1.7% to P333.615 billion in September from P339.273 billion a year ago.

Banks continued to build up loan loss reserves to P424.643 billion in September from P410.605 billion a year ago, bringing the ratio to 3.51% from 3.74% a year earlier.     

The banking industry’s NPL coverage ratio improved to 102.3% as of September, from 84.42% in 2021.

China Banking Corp. Chief Economist Domini S. Velasquez said banks’ bad loans may continue to decline in the coming months as businesses continue to bounce back.

“Loans to productive sectors/industries have been posting positive growth rates except for a few such as education and accommodation. These sectors will likely contribute moving forward with the full resumption of face-to-face classes and increase in tourist arrivals,” she said.   

The school year started on Aug. 22 for most schools. Starting this month, public schools have been mandated to return to face-to-face classes, while private schools may continue to conduct a blended approach.   

The number of tourists is also expected to increase ahead of the holidays.

Mr. Neri noted there is a risk the NPL ratio could rise if elevated inflation and other global headwinds weigh on economic growth.

“In an adverse scenario, potential trigger to a spike in NPLs are liquidity problems that some highly leveraged domestic entities may encounter. These firms were lured by artificially low policy rates to carry out aggressive acquisitions by loading up their balance sheets with sizeable debt,” he said.

Headline inflation at the national level rose to 7.7% year on year in October from 6.9% in September. It was the seventh straight month that inflation exceeded the central bank’s 2-4% target.

To tame inflation, the BSP has raised benchmark interest rates by 225 basis points (bps) so far this year, bringing the overnight reverse repurchase rate to 4.25%. The Monetary Board is widely expected to raise by 75 bps at the policy meeting on Nov. 17.

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

The ratio stood at 3.99% as of end-December 2021.

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