NPL ratio continues to decline in November

BAD DEBTS held by Philippine banks continued to drop in November, bringing the industry’s nonperforming loan (NPL) ratio to 3.35%, with the Bangko Sentral ng Pilipinas (BSP) governor saying he does not expect a further rise this year.

Based on data from the central bank, soured loans slipped by 0.9% to P408.097 billion in November from P411.632 billion in October. It also declined by 15.3% from P481.879 billion in November 2021.

This brought the November NPL ratio to 3.35%, which fell from 3.41% in October and 4.35% in the same month of 2021. This was also the lowest in 27 months or since the 2.84% print in August 2020.

Loans are considered nonperforming once they remain unpaid for at least 90 days after the due date. They are deemed as risk assets as borrowers are unlikely to settle these loans.

“It’s hard to predict (the trend in NPLs) but I do not expect it to rise (this year). Loans are going up, so the denominator is going up,” BSP Governor Felipe M. Medalla told reporters on the sidelines of a Rotary event on Thursday. 

Data earlier released by the BSP showed outstanding loans extended by universal and commercial banks climbed by 13.7% year on year to P10.64 trillion in November. However, this is slightly slower than the 13.9% expansion in October.

Asian Institute of Management economist John Paulo R. Rivera attributed the decline in NPLs to more income-generating activities and stable employment as the economy recovered from the pandemic.

“This is expected to continue as the economy recovers and approach pre-pandemic level,” Mr. Rivera said in a Viber message.

The unemployment rate eased to 4.2% in November, the lowest in over 17 years, as firms hired more workers ahead of the holiday season. 

Since March last year, Metro Manila and most provinces in the country have been under the most lenient alert level, allowing businesses to operate at full capacity.

Consumers and businesses were also able to pay their loans amid the economic recovery, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said.

In November, banks’ total loan portfolio rose by 10.1% to P12.20 trillion from P11.08 trillion a year ago.

Past due loans fell by 13.2% to P492.528 billion from P567.512 billion a year earlier. These borrowings are equivalent to 4.04% of the industry’s total loan portfolio, down from 5.12% a year earlier.

Restructured loans fell by 4.9% year on year to P327.760 billion in November, from P344.897 billion in the same month of 2021. This brought the ratio to 2.69% in November, from 3.11% in the year prior.

Meanwhile, banks increased loan loss reserves by 2.7% to P431.501 billion in November, from P419.863 billion in the year prior. With this, the ratio went down to 3.54% from 3.79% in November a year ago.

Lenders’ NPL coverage ratio — which shows the allowance for potential losses due to bad loans — increased to 105.73% from 87.13% a year earlier.

“Further improvement in lending/credit standards also contributed to the improved loan/asset quality of banks, on top of the further reopening of the economy,” Mr. Ricafort said. 

However, he noted that elevated inflation and higher borrowing costs remain “overshadowing challenges” that may affect banks.

The BSP has raised benchmark interest rates by 350 basis points (bps) last year, bringing the overnight reverse repurchase rate to 5.5% to tame inflation.

Inflation rose to a 14-year high of 8.1% in December, bringing the full-year average to 5.8%. This is above the central bank’s 2-4% target for 2022.

BSP officials earlier said Philippine banks’ NPL ratio may peak at 8.2% in 2022.

As of end-December 2021, the ratio stood at 3.97%. — Keisha B. Ta-asan