Philippine banks well capitalized

MANILA, Philippines — Philippine banks are well placed to absorb residual stress coming from the restructured loans of stretched consumers as well as the services sector, according to S&P Global Ratings.

In a report, the debt watcher said the Philippine banking sector is adequately capitalized.

“We believe Philippine banks are well placed to absorb this residual stress given their improved capitalization and adequate provisioning coverage,” it said.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the restructured loans of Philippine banks surged by 71.2 percent to P344.08 billion in February from P200.98 billion in the same month last year. This translated to a restructured loan ratio of 3.09 percent.

On the other hand, data also showed that past due loans, or loans left unsettled beyond payment date, rose by 1.2 percent to P557.96 billion in February from P551.47 billion a year ago, resulting in a past due ratio of five percent.

Likewise, soured loans went up by 9.6 percent to P472.66 billion from P431.27 billion, translating to a higher non-performing loan (NPL) ratio of 4.24 percent in February from 4.14 percent in January.

Amid the increasing bad debts, the sector’s allowance for credit losses rose by 9.2 percent to P407.03 billion in February from P373.63 billion in the same period last year, for a higher loan loss reserve level of 3.69 percent.

S&P said the NPL ratio of Philippine banks already peaked last year.

“Overall, we believe the banking sector’s NPL ratio has peaked and is likely to gradually decline, supported by recoveries and write-offs. We note that pandemic-containment measures have become more calibrated, with authorities imposing vaccine differentiated measures rather than complete lockdowns,” S&P said.

These measures, the credit rating agency said, resulted in a more manageable impact on economic activity.

On the other hand, BSP Governor Benjamin Diokno earlier said the central bank still expects the NPL ratio of Philippine banks to accelerate and peak at 8.2 percent this year.

S&P warned that potential new coronavirus outbreaks of unknown severity could cast a shadow on the outlook for Philippine banks.

“A reimposition of strict mobility curbs will hurt businesses and consumers, resulting in further asset quality pain for the banking sector,” it said.

The debt watcher raised the economic risk trend for the Philippines to stable from negative as the country’s ratio of restructured loans is significantly lower than those of regional peers such as Indonesia, Malaysia and Thailand.

S&P expects the Philippine economy to expand by 6.5 percent for this year, 6.8 percent for 2023 and seven percent for 2024.