Banks’ 2022 NPL ratio improves further; signals speedier recovery

Philippine banks’ gross non-performing loans (NPL) ratio further dropped to a 29-month low of 3.17 percent in December 2022, an improvement from the previous year’s 3.97 percent, one of sure signs of a speedier recovery despite high inflation.

Based on Bangko Sentral ng Pilipinas (BSP) data, during the pandemic years, the lowest bad loans ratio was in August 2020 of 2.87 percent, while the peak was 4.51 percent in July and August 2021. The NPL ratio started to decelerate consistently and in a row in March 2022 from 4.08 percent to 3.17 percent at the end of 2022.

Money/File (Manila Bulletin article)

Total NPLs, which are unpaid loans for more than 90 days, decreased by 11.7 percent in December at P399.54 billion compared to P452.45 billion in 2021. The total loan portfolio as of end-2022 stood at P12.61 trillion versus P11.39 trillion in 2021.

Banks’ past due ratio or the delinquency rate, also improved to 3.80 percent in December 2022 from 4.64 percent in 2021.

Total past due loans fell 9.4 percent to P478.79 billion from P528.27 billion. 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 BSP in a report said amid the pandemic, loan quality remained manageable and within their expectations. In December 2022, banks’ NPL coverage ratio was higher at 107.84 versus 87.70 in 2021.

These loan loss reserves to NPL ratio is the proportion of loan provisions against probable losses to the total NPLs. Last year, the allowance for credit losses increased by 7.6 percent to P426.85 billion from P396.82 billion in 2021.

The BSP has noted that banks always sufficiently match the increase in NPLs with “ample” loan loss reserves. It said that the early recognition of provision for credit losses in 2020 during the height of the pandemic resulted to the high NPL coverage ratio when it was necessary.