In February, despite reduced credit growth, the proportion of bad loans to the overall loan book in the banking sector increased for the second consecutive month.
The percentage of bad debts in the entire loan book of the banking industry increased for the second consecutive month in February despite slower credit expansion brought on by the Bangko Sentral ng Pilipinas’ (BSP) string of aggressve rate rises.
The non-performing loan (NPL) ratio of Philippine banks increased slightly from 3.28 percent in January to 3.31 percent in February, according to preliminary statistics from the central bank.
After peaking at 4.24 percent in 2017, the industry’s NPL ratio progressively increased to a two-year low of 3.17 percent in December. The ratio reached its highest point in July and August 2021, when the COVID-19 pandemic’s effects were having a negative influence on the Philippine economy.
In February, bad loans held by Philippine banks decreased by 13% to P411.18 billion from P472.66 billion in the corresponding month of the previous year, according to BSP statistics.
However, since December and January, when they were P398.79 billion and P405.14 billion respectively, the industry’s bad loans have climbed.
On the other hand, while the BSP Monetary Board has increased interest rates by 425 basis points since May last year to control inflation and stabilize the peso, the expansion of the sector’s overall loan portfolio has slowed during the previous several months.
Loan disbursements at Philippine banks increased 11.3 percent, to P12.41 trillion from P11.15 trillion, as a result of high demand after the relaxation of the rigorous COVID-19 quarantine and lockdown rules and the reopening of the economy.
The amount of past-due loans held by the banking sector fell by 10%, to P502.11 billion from P557.96 billion, while the amount of restructured loans fell by 6.8%, to P320.54 billion from P344.08 billion.
In the meanwhile, loan loss reserves at Philippine banks increased to P431.52 billion in February from P407.03 billion in the same month previous year. This resulted in an NPL coverage ratio of 104.95 percent and a loan loss reserve level of 3.48 percent.
The BSP had previously predicted that the Philippine banks’ NPL ratio would peak at 8.2% last year.
The benchmark rate was raised by the BSP Monetary Board by a total of 425 basis points last year, going from an all-time low of 2% to a 16-year high of 6.25 percent.
This assisted in bringing down inflation from 8.6% in February to a six-month low of 7.6% in March, bringing the average for the first quarter of the year to 8.3%, which is still over the BSP’s goal range of two to 4%.
The NPL ratio of Philippine banks, according to S & P Global Ratings, is expected to settle at 3.3% this year as the industry is expected to achieve single-digit loan growth despite rising borrowing costs.
The debt watcher predicts that the continuously high inflation and increasing interest rates would have a negative impact on credit expansion.
Fitch Ratings, on the other hand, anticipates that the NPL ratio of Philippine banks will stay stable this year at roughly 3.5 percent due to the substantial financial protection provided by big corporate borrowers and a favorable economic climate.