By means of Luisa Maria Jacinta C. Jocson, Reporter
THE PHILIPPINE BANKING SYSTEM The gross non-performing loan (NPL) ratio declined in September, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.
The banking sector’s gross NPL ratio fell to 3.47% in September from 3.59% in August. However, in the same period in 2023, it was still higher than 3.4%.
This was also the lowest NPL ratio in Ffive months or since the 3.45% in April.
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.
Data from the BSP shows that bad loans rose 0.9% to P517.45 billion in September from P512.7 billion in the previous month.
Year on year, soured loans rose 16.5% from P444.3 billion.
Philippine banks’ total loan portfolio stood at P14.9 trillion in September, up 4.2% from P14.3 trillion in August. It also rose 14.1% from P13.06 trillion a year earlier.
Delinquent loans rose 0.2% to P632.9 billion in September, compared to P631.4 billion in the previous month. Year on year, delinquent loans increased by 15% to P549.9 billion.
This brought the delinquency ratio to 4.25% in September, down from 4.42% in August but above 4.21% a year earlier.
Restructured loans rose 0.5% to P294.5 billion in September from P293.2 billion a month ago. However, it fell 4.1% from P307.2 billion a year earlier.
Restructured loans accounted for 1.98% of the sector’s total loan portfolio in September, down from 2.05% in the previous month and 2.35% a year ago.
In September, banks’ loan loss reserves were nearly exhausted Flat (0.07%) at P482.8 billion, compared to P482.5 billion a month earlier. Meanwhile, it rose 4.8% from P460.8 billion year-on-year.
This brought the credit loss reserve ratio to 3.24%, down from 3.37% last month and 3.53% in the same month in 2023.
Lenders’ NPL coverage ratio, which measures the provision for potential losses from bad loans, fell to 93.31% in September from 94.11% in August and 103.71% a year earlier.
“Banks’ NPL ratio improved despite faster loan growth in recent months, effectively widening the denominator and mathematically easing the NPL ratio,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said. in a Viber message.
The latest data from the BSP shows that bank lending grew 11% year-on-year to $12.4 trillion in September, the fastest pace in almost two years or since 13.7% in December 2022.
The NPL ratio could also continue to improve in the coming months, Mr Ricafort said.
“The latest cuts in the RRR (reserve requirement ratio) that effectively injected about P400 billion into the financial system would allow banks to increase their loanable funds, which could lead to faster loan growth and mathematically lead to a lower NPL ratio,” he said.
The BSP reduced the RRR for universal and commercial banks and non-bank financial institutions with quasi-banking functions by 250 basis points (bps) from 9.5% to 7%, effective October 25.
Further interest rate cuts by the US Federal Reserve and the Philippine central bank would also lead to more loan demand, Mr Ricafort said.
“Thus, banks’ asset quality would still improve in terms of further easing of banks’ NPL ratio, in an environment made more favorable by expected Fed and local interest rate cuts over the coming months,” he added.
Last week, the US central bank lowered its policy interest rate by a quarter of a percentage point to the range of 4.5-4.75%.
Meanwhile, the Bangko Sentral ng Pilipinas (BSP) has cut borrowing costs by 50 basis points so far this year since the easing cycle began in August.
The Monetary Board cut rates by 25 bps at each meeting in August and October, bringing the policy rate to 6%. The last policy review for this year is scheduled for December 19.