Banks’ gross non-performing loans (NPL) ratio went up to a new 13-year high of 4.51 percent in July from 4.48 percent in June, and much more higher than 2.70 percent same time last year since borrowers are still struggling to meet their loan payments amid the still surging public health crisis.
Based on Bangko Sentral ng Pilipinas (BSP) data, the banking sector’s soured loans or NPLs increased by 66.35 percent in July to P487.005 billion from P292.760 billion same time last year. NPLs are unpaid and impaired loan accounts for more than 30 days.
Past due ratio or the delinquency rate is unchanged however at 5.31 percent. Past due loans (PDL) which are loans whose principal/interest/installment are unpaid past the due date, amounted to P573.785 billion against a total loan portfolio of P10.804 trillion. The current PDL is lower compared to P576.172 billion in July 2020.
Banks’ NPL coverage ratio sligthly improved in July at 82.44 percent. Banks put up P401.503 billion allowance for credit losses against the total loan portfolio during the period.
BSP data showed that banks also continue to increase their loan loss reserves to the total loan portfolio which is at 3.72 percent in July.
The last time NPL ratio was near the 4.51 percent level was in June 2008 with 4.49 percent and at 4.52 percent of September of the same year.
BSP Governor Benjamin E. Diokno expects NPL ratio to rise above six percent by the end of this year.
Diokno said this week that, “on the whole, Philippine banks have continued to rein in the NPL ratio within manageable level, reflecting gains from prudent reforms and improvements in banks’ credit risk management systems.”
He also sees NPLs to remain at manageable levels despite its increase in the past year due to borrowers’ incapacity to pay their loans with interrupted work and businesses during the prolonged lockdown.
For now, pending the full operationalization of the Financial Institutions Strategic Transfer (FIST) Act, banks will continue to be given regulatory relief package as an interim measure, said Diokno.
“The FIST Act will reinforce banks’ capital and liquidity position in the long-term by allowing financial institutions to dispose their non-performing assets, increase their risk-bearing capacity, and enhance their capability to provide financial services to productive sectors of the economy,” he said.
The FIST Act took effect in February this year. Diokno said that when FIST Act is working fully, BSP’s support measures to help banks cope with COVID-19 lockdowns will stop.
The FIST Act is expected to reduce NPL ratio by 0.6 to 5.8 percentage points from 2021 to 2025.