Bad loans ratio highest since 2009


Luz Wendy T. Noble, Reporter

SOURED LOANS held by Philippine banks continued to rise in April, bringing the nonperforming loan (NPL) ratio to its highest in nearly 12 years as borrowers’ capacity to pay debts were affected by the reimposed restriction measures.

The banking industry’s nonperforming loans surged 84% to P463.659 billion in April from P251.984 billion a year ago, based on central bank data posted on its website over the weekend. The April figure was also higher by 3.39% from the P448.44 billion in March.

This brought the system-wide NPL ratio to 4.35%, rising from the 2.31% in April 2020 as well as the 4.21% in March. This is also the highest NPL ratio since the 4.37% recorded in May 2009.

Bank loans are recognized as nonperforming once they are left unpaid for at least 30 days beyond the due date. These soured loans are risky to asset quality of banks as borrowers are likely to default on these debts.

Analysts said the reimposition of lockdown restrictions in late March hurt business activity and affected the capacity of borrowers to repay their debts.

“Many small businesses have had to shut shop as revenues plunged with the lockdowns. Household incomes have been disrupted due to job losses and salary cuts,” S&P Global Ratings analyst Nikita Anand said in an e-mail.

Metro Manila and four adjacent provinces were placed under the tightest form of lockdown for two weeks from late March to mid-April to curb a spike in coronavirus infections. Restrictions in these areas have since been eased.

“The recent lockdowns resulted to temporary and permanent closure of some businesses as well as temporary or permanent losses of some employment, thereby impairing the ability to pay by some borrowers, both businesses and individuals,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Banks also continued to recognize the rise in bad loans following the expiration of the loan payment extension under Republic Act 11469 or the Bayanihan to Heal as One Act (Bayanihan II) in December, further contributing to the rising NPL ratio, Mr. Ricafort added.

Due to the uptick in bad loans, banks remained risk averse, causing the total loan portfolio to drop by 2.47% to P10.649 trillion from P10.919 trillion last year and by 0.1% from the P10.66 trillion in March.

In April, past due loans rose 38.13% to P574.128 billion from P415.619 billion. This brought the ratio to 5.39% from 3.81% a year ago.

Restructured loans also increased 411% to P242.044 billion from P47.354 billion logged in April 2020. These loans made up 2.27% of banks’ credit portfolio from merely 0.43% last year.

Banks also continued to boost their loan loss reserves to P377.811 billion, up 58% from a year ago’s P238.675 billion. This brought the ratio to 3.55% from 2.19% a year ago.

Despite this, NPL coverage ratio — a gauge of allowance for potential losses due to NPLs — declined to 81.48% from 94.72% a year ago.

BSP Deputy Governor Chuchi G. Fonacier has said that banks’ NPL ratio may continue to climb to a little over 5% by the end of 2021. She assured the banking industry continues to remain stable as it has ample capital.

Central bank officials expect the Financial Institution Strategic Transfer (FIST) Law could bring down the NPL ratio by about 0.63 to 0.71 percentage point. Under the law, banks may sell assets or loans that will be recognized as nonperforming until Dec. 31, 2022.

The BSP estimates at least P152 billion in nonperforming assets (NPAs) will be offloaded by banks through FIST.

“We believe banks will wait and assess the impact of recurrent pandemic waves and vaccination progress to evaluate the amount of NPLs they want to sell,” Ms. Anand said, noting the law could help banks to focus on growth opportunities instead of spending on recoveries from stressed loans.

The central bank has released implementing rules and guidelines for financial institutions that seek to transfer their NPAs to FIST corporations. The BSP will be accepting applications for certificate of eligibility to sell these NPAs until Feb. 24, 2023.