Bad loan ratio steady in Feb.

The Philippines banking industry’s nonperforming loan (NPL) ratio remained steady in February, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Data from the central bank showed that the banking sector’s NPL ratio stood at 3.44% as of end-February, unchanged from end-January.

However, it was higher than the 3.31% ratio in the same period a year ago.

The February ratio was also the highest in nine months or since the 3.46% recorded in May 2023.

The amount of bad loans increased by 13.4% to PHP 466.114 billion as of February from PHP 411.186 billion in the same period a year ago. It also inched up by 1.2% from the PHP 460.76 billion seen as of end-January.

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

Meanwhile, banks’ total loan portfolio increased by 9.1% to PHP 13.54 trillion in February from PHP 12.41 trillion a year ago. Month on month, it inched up by 1.2% from PHP 13.38 trillion in the previous month.

“The existing high interest rate and elevated inflation environment may have contributed to the rise of bad loans year on year,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said in a Viber message.

“The higher cost of borrowing does put pressure on existing loans and may expose newer loans to higher probability of default due to the prevailing interest rate conditions,” he added.

The BSP has raised borrowing costs by 450 basis points (bps) from May 2022 to October 2023, bringing the benchmark rate to a near 17-year high of 6.5%.

The Monetary Board will hold its next policy review on April 8.

BSP data showed past due loans held by banks stood at PHP 584.227 billion in February, up by 16.4% from PHP 502.112 billion a year ago. This brought the past due ratio to 4.31% from 4.04% a year earlier.

Meanwhile, restructured loans declined by 8.9% to P292.085 billion in February from P320.542 billion a year ago. This was equivalent to 2.16% of total loans, lower than 2.58% a year earlier.

Banks’ loan loss reserves went up by 8.1% to PHP 466.393 billion in February from PHP 431.524 billion in the same period last year.  These borrowings made up 3.44% of banks’ portfolios, slipping from 3.48% at end-February 2023.

“For the coming months, possible Fed and local policy rate cuts in the coming months could help reduce borrowing costs,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“(This) could all somewhat improve the ability to pay of some borrowers, thereby could lead to some improvement in banks’ NPL ratio, going forward,” he added.

BSP Governor Eli M. Remolona, Jr. has said that the central bank may begin cutting rates in its next few meetings.

The BSP is widely expected to begin policy easing when the US Federal Reserve delivers its first rate cut, which is projected to be by midyear. – Luisa Maria Jacinta C. Jocson, Reporter