The banking sector’s soured loans increased by 15 percent to P454.49 billion in 2021 versus P394.87 billion in 2020, based on Bangko Sentral ng Pilipinas (BSP) data.

The gross non-performing loan (NPL) ratio was also up at 3.99 percent by December 2021 compared to 3.63 percent same period in 2020. The ratio is however lower compared to November 2021 of 4.35 percent.

The latest NPL ratio is the lowest since January 2021 of 3.72 percent. NPL ratio reached a peak of 4.51 percent in July and August 2021. NPLs are unpaid and impaired loan accounts for more than 30 days.

As of end-December, the industry’s total loan portfolio of P11.39 trillion was up by 4.75 percent from P10.87 trillion in 2020.

Meantime, past due ratio or the delinquency rate as of December 2021 was at 4.66 percent, also higher than 4.46 percent in 2020. Past due loans totalled P531.06 billion, which was 9.44 percent more than P485.24 billion in 2020.

Banks’ soured loans are supported by adequate loan-loss provisioning that showed that despite a slack in economic activity, lenders are well-capitalized and liquid enough to cover credit losses.

The NPL coverage ratio as of end-December stood at 87.37 percent, lower than the previous year’s 92.98 percent. Banks also raised their allowance for credit losses to P397.09 billion compared to P367.16 billion in 2020 or an increase of 8.15 percent.

Based on BSP’s NPL projections for 2021, the ratio could settle between five and six percent using simulations under three different scenarios: “low”, ”moderate”, and “extreme”. The central bank’s maximum NPL estimates are conservative estimates using the 1997-1998 Asian Financial Crisis as base experience.

BSP Deputy Governor Chuchi G. Fonacier said in January that the scenarios “do not consider the sound financial position as well as strong risk governance of banks coming into the COVID-19 crisis.”

The central bank has also not factored in BSP’s prudential policy reforms over the years to promote prudent risk- taking behavior, including sound credit risk management in banks, she added.

Also, Fonacier said projections under the “extreme” scenario have not considered the impact of BSP’s extraordinary relief measures which has “eased various prudential requirements for purposes of incentivizing banks to grant equivalent financial relief to borrowers and to continue lending to vulnerable segments of society.”

“These measures provide banks with flexibility in managing their operations and the financial capacity to tailor-fit loan terms of affected borrowers based on their projected cash flow to increase the probability of loan collection,” said Fonacier.