The banking sector’s soured loans or non-performing loan (NPL) ratio is still rising at 3.46 percent in May as more borrowers are paying past the due date or not at all.
The current NPL ratio is higher than April’s 3.41 percent but lower compared to same time in 2022 of 3.75 percent, based on Bangko Sentral ng Pilipinas (BSP) data.
The NPL ratio is increasing because borrowers are having difficulties making on-time payments due to several factors such as higher interest rates.
The latest industry total loan portfolio amounted to P12.599 trillion in May, up 10.19 percent from P11.443 trillion in 2022.
Total NPLs went up by 1.63 percent to P436.12 billion from P429.11 billion same period last year. NPLs are unpaid loans for more than 90 days.
Meanwhile, banks’ past due ratio or the delinquency rate has also continued to increase to 4.17 percent from 4.13 percent in April but it was lower compared to the previous year of 4.44 percent.
Past due loans rose by 3.34 percent to P525.51 billion from P508.51 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 101.81 percent for the month of May. It is more than May 2022’s 94.76 percent.
Loan loss reserves to NPL ratio is the proportion of loan provisions against probable losses to the total NPLs. In May, banks set aside P444.03 billion as allowance for credit losses, up by 9.20 percent from last year’s P406.62 billion.
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.