Banks’ bad loans inch up to 3.33% in October

The Philippine banking sector had slightly more bad debts in October than in the previous month, bringing its gross nonperforming loan (NPL) ratio to 3.33%, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

The industry’s gross NPL ratio inched up in October to 3.33% from 3.31% in September but improved from the over two-year high NPL ratio of 3.6% logged in October 2024.

October also saw the highest bad loan ratio in two months or since the 3.5% in August.

Loans are considered nonperforming once they remain unpaid for at least 90 days after the due date. These are deemed risk assets since borrowers are unlikely to pay.

Based on data from the central bank, soured loans slipped by 0.35% to PHP 537.028 billion in October from PHP 538.924 billion in September. However, it rose by 2.43% from PHP 524.311 billion a year ago.

“The slight pickup in the NPL ratio could be partly due to the slower growth in bank loans in recent months that could have slowed the growth in the denominator, adverse effects of the series of storms (and) earthquakes in recent months that slowed down economic activities amid reduced number of working days,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Earlier BSP data showed that outstanding loans extended by big banks climbed by an annual 10.3% to PHP 13.793 trillion in October. However, this was the slowest lending growth in 16 months or since the 10.1% posted in June 2024.

Mr. Ricafort likewise attributed the uptick in banks’ bad debts to the recent flood control corruption mess, which dampened infrastructure spending and limited business opportunities in the construction industry.

As of October, the banking system’s total loan portfolio stood at PHP 16.104 trillion, down 1.05% from the P16.276 trillion recorded in the previous month. Year on year, it went up by 10.68% from PHP 14.55 trillion.    

Past due loans inched up by 1.48% to PHP 687.836 billion in October from PHP 677.822 billion in September and by 7.33% from PHP 640.881 billion a year earlier.

These borrowings are equivalent to 4.27% of the industry’s total loan portfolio, higher than the 4.16% in September but below the 4.4% seen a year ago.

Restructured loans inched up by 0.02% month on month to PHP 332.823 billion in October from PHP 332.761 billion. It jumped by 13.69% from PHP 292.749 billion in October last year.

This brought the restructured loans ratio to 2.07% in October, up from 2.04% in September and 2.01% a year prior.

Meanwhile, banks’ loan loss reserves amounted to PHP 508.273 billion, up by 0.5% from PHP 505.768 billion in September and by 4.26% from PHP 487.523 billion a year ago.

With this, the ratio rose to 3.16% in October from 3.11% in September but slipped from 3.35% the previous year.

On the other hand, lenders’ NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, stood at 94.65%, higher than the 93.85% in September and 92.98% in October 2024.

“For the coming months, further (Federal Reserve) and BSP rate cuts would further reduce borrowing costs that would support debt servicing by some borrowers,” Mr. Ricafort said.

The BSP has reduced benchmark interest rates by 175 basis points (bps) since August last year, bringing it to an over three-year low of 4.75%.

A BusinessWorld poll showed that 17 out of 18 analysts expect the Monetary Board to cut the target reverse repurchase rate by 25 bps at its last meeting of the year on Dec. 11.

If realized, the benchmark rate will stand at 4.5%, the lowest in over three years or since the 4.25% in September 2022.

Meanwhile, the Fed has reduced the Federal Funds Rate by 150 bps since September 2024, which is now at the 3.75-4% range.

The Fed is scheduled to have its last policy review meeting this year on Dec. 9 and 10, where it is expected to deliver a 25-bp cut. — Katherine K. Chan