Banks’ bad debt ratio falls further to 3.53%

Lawrence Agcaoili – The Filipino Star

October 6, 2022 | 00:00

MANILA, Philippines — The share of degraded loans in total loans from Philippine banks fell for the sixth consecutive month to 3.53% in August from a revised 3.57% in July, according to Bangko Sentral ng Pilipinas (BSP).

This is the lowest non-performing loan (NPL) ratio for the country’s banking sector since the 3.51% recorded in September 2020. The NPL has been declining since March this year.

The Philippine banks’ NPL ratio peaked at 4.51% in July and August last year as the economy struggled due to the impact of the COVID-19 pandemic.

NPLs of Philippine banks continued to decline, falling 15 percent to 418.01 billion pesos at the end of August, from 491.93 billion pesos in the same period last year.

Credit growth increased to 8.6% as banks disbursed 11.84 trillion pesos in August, from 10.9 trillion a year ago, as the economy reopens further under strict quarantine protocols and of COVID lockdown.

Similarly, delinquent loans from the banking sector decreased by 14.4% to P496.13 billion from P579.6 billion.

On the other hand, restructured loans from banks fell 4.4 percent to 319.89 billion pesos in August, from 334.62 billion pesos in the same month last year.

Meanwhile, the provision for credit losses rose 1.7% to 418.06 billion pesos at the end of August, from 410.85 billion pesos a year ago. This translated into a loan loss reserve level of 3.53% and a bad debt coverage ratio of 100.1%.

The BSP earlier predicted that the NPL ratio of Philippine banks would accelerate and peak at 8.2% this year.

Joyce Ong, an analyst for the financial institutions group at Moody’s Investors Service, said earlier that the banking sector’s NPL ratio had already peaked at 4.51% last year.

Ong told reporters that the ratio of bad debt to the industry’s total loan portfolio would continue to slowly decline over the next two years.

“With the reopening of the economy in the second half of last year, we saw a decline in the NPL ratio due to the rebound in economic activities which is really slowing down all the formation of these loans,” Ong said.

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