Philippine banks’ gross non-performing loans (NPL) ratio increased to 3.44 percent in October, the highest since 3.46 percent in May earlier, based on Bangko Sentral ng Pilipinas (BSP) data.
NPLs refer to loan accounts whose principal or interest is unpaid for 30 days or more after due date or after they have become past due.
The bad loans or NPL ratio which is the percentage of NPLs to total loans, gross of allowance for credit losses but inclusive of interbank loans, has been on a downtrend from June to September this year with more borrowers able to pay their obligations on their due dates despite higher borrowing rates.
The October bad loans’ ratio rose from September’s 3.4 percent and from same period last year of 3.41 percent.
Total NPLs as of end-October amounted to P449.434 billion, up 9.18 percent from same period in 2022 of P411.632 billion.
The basis for all these ratios is the total loan portfolio of P13.062 trillion in October, up 8.27 percent from P12.064 trillion same time in 2022.
Banks’ past due ratio or the delinquency rate increased to 4.26 percent from 4.21 percent in September, and also higher than same time last year of 4.03 percent.
Total past due loans went up by 14.45 percent to P557.082 billion from P486.752 billion last year. 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.
Under BSP rules, loans and other credit accommodations with unpaid principal and interest will be classified and provided with allowance for credit losses based on the number of days of missed payments, which was anywhere from 31 to 90 days, up to 181 days and over.
Banks’ NPL coverage ratio or loan loss reserves fell from 103.65 percent in September to 102.59 percent in October. It was also lower than same time last year of 104.27 percent.
Loan loss reserves to NPL ratio is the proportion of loan provisions against probable losses to the total NPLs. To cover for these potential losses, banks set aside P461.085 billion as loan loss provisioning, up by 7.43 percent from same time last year of P429.204 billion.
BSP data showed that in October, banks’ gross restructured loans which are relief measures given to problematic borrowers, totaled P309.238 billion, down by 5.53 percent from same time last year of P327.354 billion.
Restructured loans to total gross loan portfolio stood at 2.37 percent, higher than 2.35 percent in September but lower than 2.71 percent in 2022. These are loans and other credit accommodations that a bank – upon agreement with the borrower – has modified the contractual terms and conditions and revised the schedule of payments to lessen the financial difficulty of the borrower.
The BSP also reported a non-performing asset (NPA) coverage ratio of 85.67 percent, down from 86.38 percent in September and from 86.76 percent same time last year. Total NPAs rose by 8.17 percent to P581.821 billion versus P537.846 billion in 2022.
From 2015 until 2019 or the years before the Covid crisis, the NPL ratio ranged between 1.7 percent and 2.5 percent. When the pandemic hit in March 2020, the NPL ratio increased and ranged from 2.2 percent to a high of 4.5 percent between 2020 and 2022.
In an October report of the condition of the Philippine financial system as of the first six months of 2023, the BSP said it is “confident that the NPLs of the banking system will stay manageable, owing to banks’ prudent credit standards and robust risk governance framework.”
The BSP said banks’ NPLs are backed by high loss-reserves. “Banks have also strengthened their management of NPL through various measures such as intensifying collection and resolution efforts, reducing risk exposures, and using credit risk mitigants,” said the BSP in the report.
The BSP also said that banks' “prudent credit underwriting practices and risk management on their credit exposures have allowed banks to report satisfactory loan quality even in the face of high-interest rates and inflationary pressures” and that “overall, the banking system's NPLs will continue to be manageable and well-supported by loan loss provisioning.”
BSP Governor Eli M. Remolona Jr. said Monday (Dec. 11) that the banking system remains strong even amid the pandemic and until today.
“Our banks have remained strong even through the pandemic…Liquidity even with the monetary policy tightening, is very available and banks are strong enough to continue to lend,” he said in an investors' briefing.
“Now, I say they’re strong enough, but we want them to be even stronger,” he added.