Philippine banks’ bad loan ratio declined for the month of June, the first time it showed an improvement since December 2022 as borrowers were able to pay their dues on time despite higher interest charges.

Based on Bangko Sentral ng Pilipinas (BSP) data released on Saturday, Aug. 12, the non-performing loan (NPL) ratio of the banking system slid to 3.42 percent in June from 3.46 percent in May. It is also lower compared to same time in 2022 of 3.6 percent.

The soured loans’ ratio has steadily increased from January to May this year and only showed an improvement in June. The NPL ratio is the percentage of NPLs to total loans, gross of allowance for credit losses but inclusive of interbank loans.

The total NPL – these are unpaid loans for more than 90 days  -- as of June stood at P435 billion, up by 3.25 percent from same period last year of P421.31 billion.

The latest industry total loan portfolio amounted to P12.709 trillion which was 8.48 percent higher than last year’s P11.715 trillion, according to BSP statistics.

Meanwhile, banks’ past due ratio or the delinquency rate declined to 4.08 percent in June from 4.17 percent in May, and also from 4.19 percent same time in 2022.

Total past due loans increased by 5.58 percent to P518.23 billion from P490.83 billion during the period. 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 almost unchanged at 101.91 percent from May’s 101.81 percent. This was however higher compared to June 2022’s 97.08 percent. Loan loss reserves to NPL ratio is the proportion of loan provisions against probable losses to the total NPLs.

Banks set aside P443.32 billion for loan loss provisioning. This was 8.39 percent more than last year’s P409 billion allowance for credit losses.

Banks’ relief to problematic borrowers are in the restructured loans. In June, this amounted to P312.81 billion, higher than the previous month’s P310.29 billion. This was lower however compared to same time last year of P338.94 billion.

Restructured loans to total gross loan portfolio is at 2.46 percent, same as May’s ratio, but lower than the previous year’s 2.89 percent.

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.

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.

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.