Banks’ non-performing loan (NPL) ratio worsened to a 13-year high of 4.49 percent in May versus 4.35 percent in the previous month and from 2.43 percent same time in 2020, based on Bangko Sentral ng Pilipinas (BSP) data.

The last time gross NPL ratio was at 4.49 percent was in June 2008 before it rose to 4.52 percent in September 2008, in the middle at the time of the Global Financial Crisis when NPL and loan loss provisions increased significantly, same as this year.

NPLs which are impaired loan accounts and unpaid for more than 30 days, continue to increase, it was up by 83 percent to P479.48 billion in May from P262 billion same time in 2020.

Past due ratio or the delinquency rate also climbed to 5.56 percent in May from 5.39 percent in April and 5.22 percent same time last year.

Total past due loans which are accounts unpaid on contractual due date, stood at P593.35 billion or 5.25 percent more than P563.76 billion last year.

Banks’ NPL coverage ratio was at 79.96 percent, lower than 81.48 percent in April, while the industry set aside P383.39 billion allowance for credit losses, up from April’s P377.811 billion.

The loan loss reserves in May is 3.59 percent of total loan portfolio of P10.67 trillion. Banks have started to prop up loan loss provisions early on in 2020 to provide cushion in anticipation of the adverse impact of the pandemic on their loan portfolios, said the BSP.

The NPL and past due ratios first went past four percent and five percent, respectively, in February this year.

BSP Governor Benjamin E. Diokno expects NPL ratio to breach six percent by the end of 2021.

He also said last Tuesday that with the operationalization of the Financial Institutions Strategic Transfer or FIST Act (Republic Act No. 11523), NPL ratio will be reduced by 0.6 to 5.8 percentage points in 2021 to 2025.

The FIST law took effect in February, allowing banks to manage NPL through the transfer or sale of non-performing assets (NPA) to FIST Corporations, Special Purpose Vehicles and eligible individuals. This will free up bank liquidity and boost lending to critical sectors to lift the economy out of its pandemic-induced recession.

Diokno said the banking sector continue to be resilient despite rising NPL ratio amid the pandemic. He said banks have “kept the impact of the crisis manageable” with a healthy capital adequacy ratio. NPL ratio has also remained manageable and “far from levels seen in the aftermath of the Asian financial crisis,” he added. Pre-pandemic, NPL ratio was stable in past years, even below two percent in 2018 and steady at the two-percent level in 2019 until the COVID-19 health issue was declared a global pandemic in 2020. The ratio jumped from 2.48 percent in August last year to 3.51 percent by September. By December 2020 it was at 3.63 percent.