Philippine banks' write-offs for bad loans have reached P3.517 billion as of end-March, 205 percent higher from same time last year of P1.153 billion, based on data from the Bangko Sentral ng Pilipinas (BSP).

Writing off bad debts which are non-performing loans (NPL) clears banks’ balance sheets as these are considered uncollectable debts. Banks expect gross NPL ratio to climb to six percent this year.  As of end-March, gross NPL ratio rose to 4.21 percent from just a two-percent level in 2020.

The banking sector’s provision for credit on loans and other financial assets amounted to P24.210 billion in the first quarter, it was 5.98 percent lower from last year’s P25.751 billion but it was enough to pull the cumulative net profits down by 3.05 percent to P53.982 billion from P55.684 billion in 2020.

Big banks or the universal/commercial banks accounted for a big chunk of write-offs with P3.420 billion, up by 197.90 percent from same time in 2020 of P1.148 billion. Thrift banks only have P9 million of bad debts written off during the period but the amount was also higher than P3 million it considered unrecoverable debts in 2020.

Large lenders reported P48.441 billion in net profits as of end-March, 3.97 percent lower compared to same period last year of P50.444 billion. Thrift banks had a combined net profits of P2.738 billion, down by 20.57 percent from P3.888 billion in 2020.

Last year, the banking sector reported write-offs for bad loans of P6.390 billion which was 63.47 percent higher than P3.909 billion in 2019, pre-pandemic.

The industry’s cumulative losses on financial assets ballooned to P214.170 billion from only P51.169 billion in 2019. While banks have written off P6.390 billion last year, its provision for credit losses on loans and other financial assets increased to P211.606 billion from just P52.893 billion in the previous year.

At the end of 2020, the combined net profits of all banks totalled P155.218 billion, down by 32.71 percent year-on-year from P230.671 billion in 2019, mainly due to the increase in banks’ provision for credit losses on loans and other financial assets.

In a report, the BSP said the Philippine banking system continue to be “fundamentally sound and stable” amid the pandemic in terms of assets, capital and deposits growth, and positive net profit, stable capital buffers and ample loan loss reserves. “Funded by deposit generation, bond issuances and capital infusion, total resources continued to expand with a novel shift to digital channels, enabling the banking system to keep its critical role in sustaining a functioning financial system with continued delivery of relevant financial services during the pandemic,” said the BSP.

Last year, big banks as well as the smaller rural and cooperative banks posted growth in total assets, deposits and capital, however thrift banks as a sector recorded lower total assets, deposits and capital.

“The loan quality of all banking industries remained manageable as loan loss provisions increased to cushion higher NPL levels. Moreover, across all banking groups, net profit was positive and capital adequacy ratio stayed above the required minimum,” said the BSP.