Banks’ NPL ratio falls to 21-month low in June – BusinessWorld Online

By Keisha B. Ta-asan

SOURED LOANS held by Philippine banks fell for a fourth straight month in June, bringing the nonperforming loan (NPL) ratio to its lowest in 21 months as economic activity continues to pick up.

However, economists said the decline in bad loans might slow in the coming months amid the central bank’s monetary tightening.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the gross NPL ratio of the Philippine banking industry dropped to 3.6% in June, from 4.48% a year ago and 3.75% in May.   

The June bad loan was the lowest since 3.5% in September 2020.   

Bad loans dropped by 12.7% to P421.311 billion in June from P482.991 billion a year earlier. This was also 1.8% lower than P429.106 billion in May.

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. 

“NPL ratios continue to dip as cash flows improve now that the economy has reopened,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail on Tuesday.   

Since March, Metro Manila and some provinces have been under the most lenient alert level, though coronavirus infections have started to rise again. 

BSP data showed banks’ gross loan portfolio expanded by 8.7% to P11.71 trillion in June from P10.77 trillion a year ago. It also went up by 2.7% from the P11.44 trillion in May.    

Meanwhile, past due loans dropped by 14.9% to P490.834 billion from P577.060 billion a year ago. This brought the ratio to 4.19% from 5.36% a year ago. 

Restructured loans climbed by 3.1% to P338.936 billion from P328.647 billion in the same month in 2021. These accounted for 2.89% of banks’ loan portfolio.

Banks continued to boost their loan loss reserves to P409 billion in June from P397.790 billion a year ago. This brought the ratio to 3.49% from 3.69% a year earlier. 

The industry’s NPL coverage ratio improved to 97.08% from 82.36% the year before. 

“Declining NPL is due to recovering employment and the return of economic activities. This will continue as we further reopen the economy and jobs resume and the employment rate improves,” Asian Institute of Management Economist John Paolo R. Rivera said.   

Based on data from the Philippine Statistics Authority, the jobless rate stood at 6% in June, steady for the second straight month.   

“We can expect the NPL to sustain its downward trend but the decline may somewhat now that the BSP is hiking policy rates,” Mr. Mapa said.   

BSP Governor Felipe M. Medalla signaled a 50-basis point (bp) increase in policy rates at their Aug. 18 meeting, as inflation quickened in July. 

The consumer price index at the national level climbed by 6.4% year on year last month. It was the fourth straight month that inflation exceeded the central bank’s 2-4% target.

The July inflation print was also the fastest in 45 months, or since the 6.9% logged in October 2018.

The BSP has raised benchmark interest rates by a total of 125 bps so far this year, bringing the overnight reverse repurchase rate to 3.25%.

The central bank earlier 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, as the economy started to reopen.