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PHL banking sector’s NPL ratio drops to 22-month low in July

BAD LOANS of banks continued to decline as of July. — BW FILE PHOTO

THE BANKING INDUSTRY’S nonperforming loan (NPL) ratio fell for a fifth straight month in July to its lowest in almost two years as bad debt continued to decline despite lenders’ bigger loan book.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the Philippine banking sector’s gross NPL ratio inched down to 3.57% at end-July from 3.6% in June and 4.51% in the same month last year.

The July ratio was the lowest in 22 months or since 3.51% in September 2020.     

Bad loans dropped by 13.7% to P420.255 billion as of July from P487.005 billion a year earlier. This was also 0.25% lower than the P421.311 billion seen at end-June.

Loans are considered nonperforming once they remain unpaid for at least 30 days after the due date. They are deemed as risk assets given borrowers are unlikely to settle such loans.

Meanwhile, banks’ total loan portfolio grew to P11.77 trillion as of July from P11.72 trillion at end-June and P10.8 trillion a year prior.

“The sustained reopening of the economy has helped improve cash flow and overall business activity, helping borrowers service borrowings on time,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

“We expect this development to continue, although we could see a slower pace of improvement in the medium term after the BSP continues to hike aggressively,” Mr. Mapa said. “Higher rates could make it more difficult for borrowers to service debt, but we don’t expect the recent trend of declines in NPL to reverse altogether.”

Asian Institute of Management economist John Paolo R. Rivera said in a Viber message that the decline in soured loans shows borrowers are able to settle their obligations on time.

“This is due to the resumption of normal working/business operations that somehow ensures a steadier cash flow than before. Indeed, the business/economy is recovering,” Mr. Rivera said.

Since March, Metro Manila and some provinces have been under the least strict alert level amid declining coronavirus infections.

Meanwhile, the central bank has hiked benchmark interest rates by 175 basis points since May to curb rising prices.

BSP Governor Felipe M. Medalla on Wednesday said the central bank is likely to continue raising borrowing costs this year as inflation remains high, with the peso’s recent depreciation also being a key risk.

BSP data showed banks’ past due loans dropped by 14.3% to P491.289 billion from P573.785 billion a year ago. This brought its share in total loans to 4.17% from 5.31% a year ago.

Restructured loans climbed by 3.5% to P341.973 billion from P330.164 billion in the same month in 2021. These accounted for 2.9% of the banking system’s loan portfolio.

Meanwhile, banks continued to boost their loan loss reserves to P416.732 billion in July from P401.503 billion a year ago. This brought the ratio to 3.54% from 3.72% a year earlier.

The industry’s NPL coverage ratio also improved to 99.16% from 82.44% the year before.

The central bank has said the NPL ratio of Philippine banks might peak at 8.2% this year. The ratio stood at 3.99% as of end-December 2021. — K.B. Ta-asan

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