assets of the PHILIPPINE BANKS jellyfishThe situation worsened in July as the sector’s gross non-performing loans (NPL) ratio rose to the highest level in more than two years.
Preliminary data from the Bangko Sentral ng Pilipinas (BSP) shows the banking sector’s gross NPL ratio rose to 3.58% in July, up from 3.51% in June and 3.43% a year ago.
This was the highest bad credit ratio in 25 months or since 3.6% in June 2022.
Data from the BSP showed that soured loans rose 1.13% to P508.11 billion at the end of July, from P502.42 billion a month earlier. Year-on-year, bad loans rose 15.46% from P440.07 billion.
Loans are considered non-performing once they remain unpaid for at least 90 days after the due date. These are considered risky assets because borrowers are unlikely to pay.
Philippine banks’ loan portfolio fell 0.78% from P14.32 trillion at the end of June to P14.21 trillion at the end of July. However, it rose 10.79% from P12.82 trillion a year ago.
Delinquent loans rose 1.88% to P625.71 billion in July from P614.17 billion a month earlier. Year over year, it rose 18.37% from P528.62 billion.
This brought the delinquency ratio to 4.4% in July, up from 4.29% in June and 4.12% a year ago.
On the other hand, restructured loans in July amounted to P291.08 billion, down 0.86% from P293.62 billion in June. Year on year, it fell 4.47% from P304.71 billion a year ago.
Restructured loans accounted for 2.05% of the sector’s total loan portfolio, stable from a month ago but down from 2.38% in July 2023.
Banks’ loan loss reserves fell 0.05% to P479.24 billion in July from P479.46 billion in June, but rose 6.44% from P450.24 billion a year ago.
This brought the loan loss reserve ratio to 3.37%, slightly higher than 3.35% last month but lower than 3.51% a year ago.
Lenders’ NPL coverage ratio, which measures the provision for potential losses due to bad loans, fell to 94.32% in July from 95.43% in June and 102.66% in July 2023.
The higher NPL ratio in July can be attributed to higher borrowing costs, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said. in a Viber message.
“The NPL ratio for Philippine banks reached 3.58% in July, a two-year high, likely due to factors such as post-pandemic recovery challenges, rising interest rates and sector-specific issues,” Reyes Tacandong & Co said. Senior Advisor Jonathan L. Ravelas said in a Viber message.
The BSP had kept its policy rate at a more than 17-year high of 6.5% from October 2023 to July 2024. At its August meeting, the Monetary Board cut its policy rate by 25 basis points (bps) to 6.25%.
“In addition, the latest increase in banks’ NPL ratio may also be a function of faster credit growth in recent months, meaning that the faster expansion of banks’ loan portfolio also partly corresponds to some increase in NPLs. So it is very important to have strict and uncompromising credit and lending conditions to minimize the number of NPLs,” said Mr. Ricafort.
Outstanding loans of universal and commercial banks rose 10.4% year-on-year to P12.14 trillion in July, compared to P11 trillion a year ago. This was the fastest loan growth in 19 months or since 13.7% in December 2022.
For the rest of the year, Mr Ricafort said interest rate cuts by the US Federal Reserve and the BSP would lower borrowing costs for consumers and businesses.
“(This) could also help boost economic growth and other business activities, thereby leading to some improvement in the payment ability of borrowers, which will help alleviate the NPL ratio and overall asset quality of banks,” he said.
Mr Ravelas said he is “cautiously optimistic” about the prospects for the banks.
“However, with improved economic conditions, easing measures from the BSP and strengthened risk management by banks, the asset quality outlook is cautiously optimistic for the remainder of the year,” Mr Ravelas added.
BSP Governor Eli M. Remolona, Jr. previously said the central bank could cut rates by another 25 basis points within a year. The last two policy-setting meetings of the Monetary Board this year are on October 17 and December 19. Aaron Michael C. Sy