Banks’ NPL ratio slips to two-month low

Philippine banks’ asset quality improved in November as the banking industry’s gross nonperforming loan (NPL) ratio slipped to its lowest in two months.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed banks’ NPL ratio stood at 3.41% in November, easing from the five-month high of 3.44% in October but still above 3.35% a year prior.

The November bad loan ratio marked the lowest in two months or since 3.4% logged in September.

However, bad loans inched up by 1.1% to PHP 454.281 billion in November from PHP 449.454 billion in the prior month. Year on year, it rose by 11.3% from PHP 408.097 billion in November 2022.

Lenders’ total loan portfolio expanded by 9.3% year on year to PHP 13.34 trillion as of November.

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.

Despite high borrowing costs, Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion noted the NPL ratio in November remained low due to strong economic growth.

“Even with the high interest rate environment, the view of BSP Governor [Eli M. Remolona, Jr.] on 6.5% still being appropriate for growth and expansion to thrive must be lent apt credence,” Mr. Asuncion said. 

At its November meeting, the Monetary Board decided to keep the key interest rate unchanged at 6.5%, its highest print in 16 years. The BSP hiked borrowing costs by 450 basis points (bps) from May 2022 to October 2023 to tame inflation. 

Mr. Remolona earlier said that at 6.5%, the benchmark rate still remains supportive of economic growth. He noted the BSP’s hawkish stance has not derailed the economy’s growth momentum.

The BSP chief had said gross domestic product (GDP) likely expanded by around 5.9% in the fourth quarter of 2023. He expects stronger GDP growth in the first six months of 2024.

Mr. Asuncion said the economy likely grew by 6.2% in the fourth quarter last year, which would bring the full-year average to 5.7%. This is below the government’s 6-7% goal and the 7.6% seen in 2022. 

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the seasonal uptick in economic activity ahead of the holidays led to better business and livelihood conditions, which allowed borrowers to pay their loans.

BSP data showed past due loans rose by 14.3% to PHP 563.384 billion as of November from PHP 492.528 billion a year ago. These accounted for 4.22% of the total loans, slightly higher than 4.04% a year ago.

In the same month, restructured loans fell by 6.7% to PHP 305.81 billion from PHP 327.76 billion a year ago. This brought its ratio to 2.29% of banks’ gross loan portfolio from 2.69% in November 2022.

Lenders’ loan loss reserves jumped by 6.8% year on year to PHP 460.953 billion, equivalent to 3.46% of the total loans. The latest ratio is lower than 3.54% seen in the same month in 2022.

NPL coverage ratio — which indicates banks’ allowance for potential losses due to bad loans — was a tad lower at 101.47% from 105.73% a year ago.     

“Possible local policy rate cuts for the coming months would help boost loan demand, investments, and other economic activities, thereby would help further reduce the NPL ratio for the coming months,” Mr. Ricafort said.

The BSP may likely cut borrowing costs by as much as 100 bps this year as inflation is seen to stay mostly within the 2-4% target band, Finance Secretary and Monetary Board member Benjamin E. Diokno said on Monday.

Most analysts also expect the Philippine central bank to start its policy easing in the second half of the year. 

“A more expansive monetary policy into 2024 will definitely bode well for lower and more stable NPLs,” Mr. Asuncion likewise said.

However, Mr. Remolona has said that the Monetary Board will only consider rate cuts if inflation is seen staying firmly within the 2-4% target range.

The BSP will have its first policy review this year on Feb. 15. — Keisha B. Ta-asan