Local banks’ gross non-performing loans (NPL) or bad loans ratio dropped to a two-month low of 3.51 percent in June, based on the latest Bangko Sentral ng Pilipinas (BSP) data.
Total NPLs which are loan accounts whose principal or interest is unpaid for 30 days or more after they have become past due, amounted to P502.442 billion during the period, up by 14.8 percent compared to same period in 2023 of P437.633 billion.
NPLs are loans, investments, receivables, or any financial asset considered impaired under existing accounting standards. These are also classified as doubtful or loss, in litigation, or there is evidence that full repayment of principal and interest is unlikely without foreclosure of collateral, if any, said the BSP.
As for NPL ratio, this is the percentage of NPLs to total loans, gross of allowance for credit losses but inclusive of interbank loans.
The June NPL ratio is lower than May’s 3.57 percent but higher than same time last year of 3.43 percent. It was the lowest in two months after April's 3.45 percent. BSP records also showed that the last time NPL ratio was at 3.51 percent was September 2020.
Meanwhile, the industry’s total loan portfolio increased by 12.36 percent year-on-year to P14.318 trillion versus P12.743 trillion same time last year.
Banks’ past due ratio or the delinquency rate fell to 4.29 percent in June from 4.38 percent in May but was higher than 4.09 percent in the same period last year. 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 17.8 percent year-on-year to P614.245 billion in June from P521.431 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, stood at 95.41 percent in June, lower than 95.81 percent in May and from 101.70 percent in June 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 P479.373 billion as loan loss provisioning, up by 7.7 percent from P445.070 billion last year.
Banks’ gross restructured loans which are relief measures given to problematic borrowers reached P293.617 billion in June, based on central bank data. This was lower by 6.30 percent from P313.336 billion same time in 2023.
The ratio of restructured loans to total gross loan portfolio stood at 2.05 percent during the period, down from 2.13 percent in May and from 2.46 percent in June 2023.
Restructured loans 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.