Banks’ non-performing loan (NPL) ratio increased to a five-month high of 3.33 percent in March, the third month in a row that soured loans have increased this year.

Based on Bangko Sentral ng Pilipinas (BSP) data, NPL ratio at the end of the first quarter was lower compared to same period last year of 4.08 percent. The last time NPL ratio was near the March level was on November 2022 at 3.35 percent.

NPL ratio is the percentage of NPLs to total loans, gross of allowance for credit losses, but inclusive of interbank loans. The total loan portfolio in March stood at P12.45 trillion, up 10.37 percent from March 2022’s P11.28 trillion.

Total NPLs, which are unpaid loans for more than 90 days, declined by 7.9 percent in March to P414.61 billion from P450.46 billion same time last year. It was however higher than February this year’s P411.19 billion.

Meanwhile, banks’ past due ratio or the delinquency rate decreased in March to 4.07 percent compared to 4.83 percent same time in 2022. But, similar with NPL ratio, it was higher than February’s 4.04 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.

In March, past due loans fell seven percent to P506.39 billion compared to last year’s P544.59 billion. Compared to February this year, past due loans was higher from P502.11 billion.

Based on BSP numbers, NPL coverage ratio which are loan loss reserves, improved to 105.17 percent in March from same period last year of 88.38 percent. It was slightly higher from February’s 104.95 percent.

Loan loss reserves to NPL ratio is the proportion of loan provisions against probable losses to the total NPLs.

Basically, NPL coverage ratio is the percentage of allowance for credit losses on loans to total NPLs. The industry set aside P436.03 billion as allowance for credit losses during the period, up by 7.14 percent from same time in 2022 of P406.97 billion. It was also more than February’s P431.52 billion.

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.

The BSP has noted that all throughout the Covid pandemic, the industry was able to maintain adequate allowance for credit losses to match the increase in NPLs.

“For 2023, the BSP is confident that the NPL ratio will remain in single digit and will start to return to pre-pandemic levels,” according to a BSP report on the Philippine Financial System as of end-2022, which was released earlier this month.

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.

According to the latest BSP Banking Sector Outlook Survey, big banks’ NPL ratio projection is about two percent to three percent in the next two years while most of the large lenders estimate their NPL coverage ratio to be at least 75 percent to more than 100 percent.