The Philippine banking system’s gross non-performing loan (NPL) ratio in July remained at 3.43 percent, same as in June, an indication of a steady trend of borrowers paying their dues on time.

Based on Bangko Sentral ng Pilipinas (BSP) data released on Wednesday, Sept. 13, NPL or soured loans’ ratio improved from same period last year of 3.57 percent.

The NPL 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 or unpaid loans for more than 90 days, as of July increased by 4.54 percent to P439.327 billion compared to same time last year of P420.254 billion.

Total loan portfolio also grew by 8.82 percent to P12.812 trillion from P11.774 trillion in July 2022.

Meanwhile, banks’ past due ratio or the delinquency rate rose to 4.12 percent from the previous month’s 4.09 percent. Compared to same time last year, it was lower from 4.17 percent.

Total past due loans was up by 7.55 percent to P528.404 billion from P491.289 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 was reported at 102.37 percent in July compared to 101.89 percent in June. It was also higher from same period last year of 99.16 percent.

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

Based on BSP data, the banking industry set aside P449.748 billion for loan loss provisioning in July, up by 7.92 percent from P416.732 billion last year.

Banks’ relief to problematic borrowers are in the restructured loans. This amounted to P304.175 billion in July with a ratio to total loans of 2.37 percent which was lower compared to June’s 2.46 percent. Last year, restructured loans totaled P341.972 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.

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.

In a first quarter 2023 report, the BSP said the Philippine banking system continues to improve amid recovery of domestic economic activity. The assessment came from a review of banks’ assets and deposits which continue to grow.

BSP also noted that banks’ asset quality generally improved while capital adequacy ratios (CARs) remained above international standards. As of end-March this year, CAR was at 16.4 percent on solo basis and 16.1 percent on consolidated basis. These are above BSP’s required 10 percent CAR and eight percent of the Bank for International Settlements’ benchmark.