Bad loans ratio edges up in Oct.

By Luz Wendy T. Noble, Reporter

SOURED LOANS in lenders’ portfolios continued to pile up for the ninth straight month, reflecting the grim impact of the pandemic on businesses and consumers.

Bangko Sentral ng Pilipinas (BSP) data showed gross nonperforming loan (NPL) ratio as of end-October reached 3.69%, edging up from the 3.47% as of end-September and the 2.2% a year ago. It is also the highest since at least 2013, when the central bank applied the financial reporting package methodology to gauge asset quality of lenders.

The banking system’s bad loan ratio will likely increase to 4.6% by end-2020, based on BSP projections. It peaked at 17.6% in 2002, as a consequence of the Asian financial crisis.

As of end-October, soured loans hit P391.42 billion, rising by 5.6% from the P370.68-billion level in September and by 69.89% from the P230.396 billion in October 2019.

Loans fall under the nonperforming category if they are unpaid for at least 30 days after the due date. They are considered as risk assets because borrowers are unlikely to settle these loans.

The bad loan pileup outpaced the growth in lenders’ credit portfolio, which increased by 1.21% year on year to P10.607 trillion in October.

October also saw past due loans surge 83.65% to P507.558 billion from P309.26 billion a year ago. With this, the past due ratio picked up to 4.79% from 2.95%.

Meanwhile, restructured loans reached P136.16 billion, more than double the P42.06 billion logged in October 2019. This brought its ratio against the total portfolio to 1.28% from 0.4%.

To guard against worsening asset quality, lenders increased the allowance for credit losses by 64.26% to P347.7 billion from P211.542 billion a year ago.

NPL coverage ratio across the industry, which gauges the allowance for potential losses due to soured loans, stood at 88.83% as of end-October, lower than the 91.82% a year ago and the 91.45% seen as of end-September.

The NPL ratio level as of end-October could still be considered “tempered” and may likely continue inching up as the mandatory grace period lapses, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

A one-time 60-day loan moratorium was provided under Republic Act (RA) No. 11494 or the Bayanihan to Recover as One Act. This followed the first mandatory grace period mandated by Bayanihan I or RA No. 11469.

Moody’s Investors Service said the Philippines loan moratorium is the “broadest” among its ASEAN peers such as Malaysia and Thailand where grace periods also still exist in varying degrees.

“Given borrowers in the Philippines are still benefiting from loan moratoria, we expect asset quality will further deteriorate in 2021 when the payment forbearance ends. It also remains to be seen how the Philippines will transition borrowers back to full loan repayments,” it said in a note on Thursday.

The further reopening of the economy will help temper the rise in NPLs, Mr. Ricafort said.

Despite record-low interest rates, banks are likely to maintain “rigid scrutiny” for loan approvals, said Emmanuel J. Lopez, dean of the Colegio de San Juan de Letran Graduate School.

“This makes funds less available for investments. This will have a negative effect as far as investment spending,” Mr. Lopez said in an e-mail.

BSP data showed lenders tightened credit standards since the second quarter to guard asset quality amid the crisis.

“The passage of the FIST (Financial Institutions Strategic Transfer) bill would help banks unload NPLs, thereby could also help lower NPL ratio and, in turn, enable banks to increase their lending activities,” Mr. Ricafort said.

The reconciled version of House Bill No. 6816 and Senate Bill No. 1849 has been approved by the Bicameral Conference Committee. Once legislated, the measure will allow the creation of FIST corporations that will be allowed to acquire banks’ nonperforming assets or engage third parties for its management.

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