Banks’ NPL ratio improves in March

The banking sector’s gross non-performing loans (NPL) or bad loans ratio dropped to 3.39 percent in March versus 3.44 percent in February, the lowest so far for the year, based on Bangko Sentral ng Pilipinas (BSP) data.

The current bad loans ratio is, however, higher compared to same period last year of 3.33 percent.

In March, total NPL increased by 11.97 percent year-on-year to P464.673 billion from P414.979 billion.

The NPL ratio is the percentage of NPLs to total loans, gross of allowance for credit losses but inclusive of interbank loans. NPLs refer to loan accounts whose principal or interest is unpaid for 30 days or more after they have become past due.

The BSP recorded total loan portfolio in March of P13.692 trillion, up by 9.79 percent compared to P12.470 trillion last year.

Meanwhile, banks’ past due ratio or the delinquency rate also dipped to 4.30 percent in March from 4.31 percent in February. 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.

The total past due loans grew by 15.73 percent to P588.446 billion in March from P508.455 billion same period in 2023.

Under BSP rules, loans and other credit accommodations with unpaid principal and interest will be 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.

Banks’ NPL coverage ratio which are loan loss reserves, was at 100.66 percent in March from 100.06 percent in February, and 105.23 percent in March 2023.

Loan loss reserves to NPL ratio is the proportion of loan provisions against probable losses to the total NPLs. To cover for these potential losses, banks set aside P467.757 billion as loan loss provisioning, up by 7.11 percent from P436.671 billion last year.

Banks’ gross restructured loans which are relief measures given to problematic borrowers totaled P294.538 billion in March, down by 8.77 percent from P322.866 billion in 2023.

Restructured loans to total gross loan portfolio was at 2.15 percent, lower than 2.59 percent in 2023. These are loans and other credit accommodations that a bank – upon agreement with the borrower – has modified the contractual terms and conditions and revised the schedule of payments to lessen the financial difficulty of the borrower.

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.