Bad loans continue to drop in Nov.

Published January 11, 2022, 1:34 PM

by Lee C. Chipongian

Banks’ gross non-performing loans (NPL) ratio declined in November 2021 at 4.35 percent from October’s 4.42 percent, based on Bangko Sentral ng Pilipinas (BSP) data.

This was the third month in a row that NPL ratio has decreased. The last time NPL ratio was at 4.35 percent was in April 2021. The November bad loans ratio is higher compared to same period in 2020 of 3.81 percent.

Total NPLs which are unpaid and impaired loan accounts for more than 30 days, reached P481.88 billion in November, down from P483.98 billion in October but higher than the previous year’s P404.69 billion, based on BSP data.

Total loan portfolio stood at P11.08 trillion for the first 11 months last year, up from P10.62 trillion same period in 2020.

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Past due ratio or the delinquency rate in November also fell to 5.12 percent compared to 5.16 percent in October. Compared to November 2020, the current past due ratio is higher from 4.78 percent.

Past due loans (PDL) are loans whose principal/interest/installment are unpaid past the due date. PDL in November amounted to P567.51 billion which was higher than October’s P565.77 billion. It was however lower than November 2020’s P507.69 billion.

The latest central bank numbers showed that banks’ NPL coverage ratio improved to 87.13 percent in November compared to 85.41 percent in October as banks raised their allowance for credit losses to P419.86 billion from P413.37 billion.

The high NPL and NPL ratio remains supported by larger loan-loss provisioning that showed that despite a slack in economic activity, banks are well-capitalized and liquid enough to provide adequate amounts for loan loss provisions.

Last October, when NPL ratio reached its peak of 4.51 percent, BSP Governor Benjamin E. Diokno said soured loans could hit a high of 8.2 percent in 2022 before gradually improving to pre-pandemic levels of around two percent.

If NPL ratio peaks at 8.2 percent this year, this would still be lower compared to Asian Financial Crisis levels when the ratio reached 18 percent.

Diokno is confident that the NPL ratio will continue to be manageable and will remain at single-digit level because of local banks’ prudent credit risk management standards and the operationalization of the Financial Institutions Strategic Transfer (FIST) Act which will help banks dispose of its non-performing assets and will also reduce NPL ratio.

The FIST Act could reduce NPL ratio by 0.6 to 5.8 percentage points from 2021 to 2025.

Based on BSP data, the NPL ratio first climbed to the four-percent level in February last year when it increased to 4.08 percent from 3.72 percent in January. It has steadily increased until it reached its peak of 4.51 percent in July and in August, before dropping to 4.44 percent and then 4.42 percent in September and October.