Banks’ bad loan write-offs total P5 B in Q2

Published August 11, 2021, 12:10 AM

by Lee C. Chipongian

Banks have written off P4.943 billion of bad loans in the first six months of this year, up by 212.8 percent from only P1.436 billion same time in 2020.

The 46 universal and commercial banks accounted for P4.920 billion of the total bad debts written off during the period, according to Bangko Sentral ng Pilipinas (BSP) data. The big banks’ write offs are 246 percent higher compared to P1.420 billion in 2020.

The 47 thrift banks, on the other hand, had bad debts written off in the amount of P11.797 million end-June, up by 189 percent from same time last year of P4.080 million.

The industry write offs of defaulting loans in the second quarter of P4.943 billion is higher than end-March’s P3.433 billion.

Writing off bad debts which are non-performing loans (NPL) clears banks’ balance sheets as these are considered uncollectable debts.

As of June this year, the industry NPL ratio stood at a 12-year high of 4.48 percent, slightly lower than May’s 4.49 percent, and higher than same period in 2020 of 2.57 percent.

The BSP and banks expect gross NPL ratio to rise by as much as six percent by the end of 2021. 

However, BSP Governor Benjamin E. Diokno is optimistic that the operationalization of the Financial Institutions Strategic Transfer or FIST Act will reduce bad loans ratio by 0.6 to 5.8 percentage points (pp) starting this year, for over a five-year period.  

The BSP’s previous estimate was that the FIST Act will slash NPL ratio by 0.63 to 0.71 pp within two years of the FIST implementation.

The FIST Act or Republic Act No. 11523 took effect last February 18. It allowed banks to easily dispose of their NPAs via asset management companies to free up bank liquidity and to boost lending to critical sectors needed to reenergize the economy in recession.