Banks trim bad loans by 13%

MANILA, Philippines — Soured loans of Philippine banks dropped by almost 13 percent to P421.31 billion in end-June from P482.99 billion a year ago   as the industry continued to restructure more loans amid external headwinds brought about by the ongoing   pandemic and the Russia-Ukraine war.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed banks restructured P338.94 billion worth of loans in June, three percent higher than the previous year’s P328.65 billion.

Credit growth also accelerated to 8.7 percent as banks disbursed P11.71 trillion in end-June from P10.77 trillion in end June last year.

Likewise, the industry’s past due loans declined by almost 15 percent to P490.83 billion from P577.06 billion.

This resulted in a decline in the share of bad debts to the total loans of Philippines, easing for the fourth straight month to a 21-month low of 3.6 percent in June from 3.75 percent in May.

This was the lowest non-performing loan (NPL) ratio for the country’s banking sector since the 3.51 percent recorded in September 2020. It was also lower than the 4.48 percent ratio booked in June last year.

The industry’s NPL ratio peaked at a 13-year high of 4.51 percent in July and August last year.

Meanwhile, banks continued to beef up their allowance for credit losses to P409 billion in end-June, 2.8 percent higher than last year’s P397.79 billion.    This translated to a loan loss reserve level of 3.49 percent and an NPL coverage ratio of 97.08 percent.

The BSP earlier projected that the NPL ratio of Philippine banks would accelerate and peak at 8.2 percent this year.

To address rising inflationary risks and to manage spillovers from other countries that could potentially dis-anchor inflation expectations, the   Monetary Board has so far raised key policy rates by 125 basis points this year.

After delivering back-to-back 25-basis-point hikes on May 19 and June 23, the BSP raised interest rates by a huge 75 basis points during a surprise off-cycle rate setting meeting last July 14.

This brought the overnight reverse repurchase rate to 3.25 percent from an all-time low of two percent.

BSP Governor Felipe Medalla has already signaled another hike ranging between 25 and 50 basis points during its next rate-setting meeting scheduled on Aug. 18.

Inflation averaged 4.7 percent after quickening further to 6.4 percent in July, the highest since the 6.9 percent recorded in October 2018, from 6.1 percent in June. The rise in consumer prices is well above the two to four percent target set by the BSP.