Bad loans drop to 17-month low

Published July 6, 2022, 9:10 PM

by Lee C. Chipongian

Banks’ soured loans or its gross non-performing loans (NPL) ratio has declined to a 17-month low of 3.75 percent in May as borrowers were able to meet their past due payments.

The latest NPL ratio is lower than April’s 3.93 percent and 4.49 percent same period in 2021, based on Bangko Sentral ng Pilipinas (BSP) data. The last time the bad loans ratio was closer to the May level was January 2021 of 3.72 percent.

Money/File (Manila Bulletin article)

NPLs, which are unpaid loans for more than 90 days, amounted to P429.106 billion end-May, down by 10.5 percent compared to the previous year of P479.481 billion. It was also four percent lower from April’s P447.438 billion.

NPLs are also considered as impaired accounts which need provisions to avoid losses for the banks. The latest NPL coverage ratio was at 94.76 percent, higher than same period in 2021 of 79.96 percent and from April of 90.60 percent.

Banks’ allowance for credit losses rose by six percent to P406.618 billion versus P383.389 billion same time in 2021. It was also slightly more than P405.399 billion provisioned last April.

The banking sector’s total loan portfolio as of end-May reached P11.443 trillion, up by 7.25 percent from P10.669 trillion same period last year. It was also higher from April’s P11.393 trillion.

Banks’ past due ratio which is the delinquency rate, meanwhile, dropped to 4.44 percent from same time in 2021 of 5.56 percent. The ratio was also lower compared to April’s 4.65 percent.

Loan accounts are considered past due if unpaid on due dates but banks may provide a cure period within 30 days to allow borrowers to catch up. The total past due loans amounted to P508.508 billion in end-May, down by 14.29 percent from P593.346 billion in 2021. It was likewise lower from April’s P529.301 billion.

More than 90 percent of the banking system’s total resources is controlled by the large universal and commercial banks, and the top banks are considered as domestic systemically important banks or D-SIBs. If these banks collapse or encounter “disorderly failure”, it would cause significant disruptions to the wider financial system and economy.

Recently, the BSP has increased the frequency of its periodic review of the D-SIBs list.

BSP Deputy Governor Francisco G. Dakila Jr. in a circular (Circular No. 1148) amending the existing rules on D-SIBs framework, said the list of these “too big to fail” banks will be “assessed” and “determined” annually based on the “latest available data submitted by each bank” subject to the approval of the Monetary Board, BSP’s policy-making arm.

D-SIBs are required to maintain additional Common Equity Tier 1 (CET1) capital on top of the existing minimum CET1 requirements. These banks must also meet higher supervisory expectations.

The BSP does not intend to release the D-SIBs’ list.