Banks’ NPL ratio hits 12-year high – BSP

Published June 7, 2021, 6:30 AM

by Lee C. Chipongian

The banking sector’s non-performing loans (NPL) ratio climbed to 4.35 percent in April this year, highest in 12 years, while delinquency rate also surged, data from the Bangko Sentral ng Pilipinas (BSP) revealed.

BSP data showed that the banking sector’s non-performing loans (NPL) ratio went up to 4.35 percent in April from 2.31 percent same time in 2020. The last time NPL ratio — which refers to the ratio of NPLs to total loans inclusive of interbank loans — was at this level was in February 2009.

Past-due ratios or the delinquency rate also climbed to 5.39 percent in April from 3.81 percent same period last year.

The NPL and past-due ratios first went past four percent and five percent, respectively, in February this year. NPLs are impaired loans on both principal and interests for more than 90 days. Past due loans (PDL) are unpaid loans after its due date.

Gross NPLs in April amounted to P463.659 billion, up 84 percent year-on-year or from P251.984 billion. PDLs also increased by 38 percent to P574.128 billion from P415.619 billion.

The increase in NPLs was matched by higher loan loss provisioning. NPL coverage ratio was at 81.48 percent in April from 83.24 percent in March.

Banks set aside P377.811 billion allowance for credit losses in April which was higher than P373.281 billion in March.

The BSP said banks began recognizing loan loss provisions since the start of 2020 to “provide cushion in anticipation of the adverse impact of the pandemic on their loan portfolios.”

The central bank monitors banks’ loan quality as part of its supervisory efforts to ensure financial stability and sound credit risk management. The assessment of banks’ loan quality has also been adjusted due to the pandemic and other factors such as relief measures provided by the BSP to both banks and non-banks.

BSP Governor Benjamin E. Diokno said last month that he expects NPL ratio to breach six percent by the end of this year.

In managing the rise in NPLs, Diokno cited the operationalization of the Financial Institutions Strategic Transfer or FIST Act (Republic Act No. 11523) which will manage banks’ NPL through the transfer or sale of banks’ non-performing assets (NPA) to FIST Corporations (FISTC), Special Purpose Vehicles and eligible individuals. 

Last Friday, the BSP released a new memo (Memorandum No. M-2021-034) for obtaining a Certificate of Eligibility (COE) under the FIST Act.

The memo, signed by BSP Deputy Governor Chuchi G. Fonacier on June 4, is a guideline for BSP supervised financial institutions intending to obtain a COE for purposes of availing of the tax exemptions and privileges for the sale/transfer of NPAs to a FISTC. The COE is a certificate to be issued by the BSP for the eligibility of the NPAs and real and other properties acquired.

The BSP expects about 30 percent of total NPAs will be resolved under the FIST law. NPL ratio is also expected to decrease by 0.63 to 0.71 percentage points within two years of the FIST implementation.