The bad loan ratio of the banking sector continued to increase in April to a seven-month high of 3.41 percent as borrowers face higher interest charges and payments as banks move to collect more.

Banks’ non-performing loan (NPL) ratio has been steadily rising since January this year, according to Bangko Sentral ng Pilipinas (BSP) data. The NPL ratio is increasing because borrowers are having difficulties making on-time payments. This may get worse especially since banks and in particular credit card issuers, have implemented abrupt increases in their payment computation.

The April NPL ratio which is the percentage of NPLs to total loans gross of allowance for credit losses but inclusive of interbank loans, is lower compared to same period last year of 3.93 percent. The last time it was at 3.41 percent was in October 2022.

The latest industry total loan portfolio amounted to P12.537 trillion in April, up 10 percent from P11.393 trillion in 2022. Of this amount, P427.265 billion are the soured loans or NPLs which are unpaid loans for more than 90 days. The NPLs are lower by 4.5 percent when compared to April 2022 of P447.438 billion.

Meanwhile, banks’ past due ratio or the delinquency rate has also continued to increase since January to 4.12 percent in April. This was lower though compared to 4.65 percent last year.

Past due loans declined by 2.5 percent to P516.020 billion from P529.301 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.

Banks’ NPL coverage ratio which are loan loss reserves, is at 103.22 percent in April, the lowest this year. It is still higher than same time in 2022 of 90.60 percent.

Loan loss reserves to NPL ratio is the proportion of loan provisions against probable losses to the total NPLs. In April, banks set aside P441.038 billion as allowance for credit losses. This was 8.79 percent higher than same period last year of P405.399 billion.

Banks’ relief to problematic borrowers are in the restructured loans. This declined by 4.54 percent in April to P325 billion from P340.50 billion last year. Restructured loans to total gross loan portfolio is about 2.59 percent, lower than the previous year’s 2.99 percent ratio.

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

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.

Based on 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.

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.