The bad credit ratio rises to the highest level in two years

By means of Luisa Maria Jacinta C. Jocson, News reporter

THE BANKING INDUSTRY is not performing well The loan ratio (NPL) rose to a nearly two-year high in May, data from the Bangko Sentral ng Pilipinas (BSP) showed.

The Philippine banking sector’s gross NPL ratio rose to 3.57% in May, up from 3.45% in April and 3.46% a year ago.

This matched the ratio of 3.57% in July 2022. It was also the highest in 23 months or since 3.6% in June 2022.

Data from the BSP showed that soured loans rose 3.1% to P495.67 billion in May, compared to P480.65 billion a month earlier. Year on year, it rose 13.7% from P436.12 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 0.3% to P13.89 trillion at the end of May from P13.94 trillion at the end of April. However, it rose 9.3% from P12.6 trillion a year ago.

Delinquent loans fell 1.6% to P608.07 billion in May from P618.04 billion a month earlier, but rose 15.7% from P525.51 billion in the previous year.

This brought the delinquency ratio to 4.38%, down from 4.43% in April but up from 4.17% a year ago.

On the other hand, restructured loans amounted to P295.89 billion, up 1.9% from P290.37 billion in April, but down 4.6% from P310.3 billion a year ago.

These loans accounted for 2.13% of the sector’s total loan portfolio, up from 2.08% a month ago but down from 2.46% in May 2023.

Banks’ loan loss reserves rose 0.7% to P474.88 billion in May from P471.35 billion in April, and rose 6.9% from P444.03 billion a year ago.

This brought the loan loss reserve ratio to 3.42%, up from 3.38% last month but lower than 3.52% a year ago.

Lenders’ NPL coverage ratio, which measures the provision for potential losses from bad loans, fell to 95.81% from 98.07% in April and 101.81% in May 2023.

Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said the higher NPL ratio was due to higher interest rates.

The Monetary Board has maintained its benchmark interest rate at 6.5% since October 2023, the highest level in more than seventeen years.

Mr. Ricafort also mentioned the weaker peso, which fell to the level of P58 per dollar in May. The local currency has been inching closer to a record low of P59 against the dollar in recent weeks.

“Over the coming months, possible interest rate cuts by the Fed and at the local level would help ease borrowing costs and stimulate greater demand for loans and other business activity, which would ultimately help ease the NPL ratio going forward,” Mr. Ricafort said .

BSP Governor Eli M. Remolona Jr. has said the central bank could begin its policy easing in August. He has also announced interest rate cuts of up to 50 basis points for the entire year.

The Monetary Board will meet on August 15, the only meeting in the third quarter. The last two meetings this year are scheduled for October 17 and December 19.

US Federal Reserve officials said at their latest meeting that the US economy appeared to be slowing and that “price pressures were easing,” but still recommended a wait-and-see approach before cutting rates, according to minutes of the June 11-12 session . Reuters reported this.

Fed officials previously announced an interest rate cut in December and had only priced in one interest rate cut compared to three previously.