Banks’ bad loan ratio down to 3.51 percent in June

MANILA, Philippines — The share of soured loans to the banking sector’s total loan book eased to a two-month low of 3.51 percent in June from 3.57 percent in May, according to the Bangko Sentral ng Pilipinas (BSP).

This marked the lowest gross non-performing loan (NPL) ratio of Philippine banks in two months or since the 3.45 percent in April.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the NPL ratio improved in June amid the recent double-digit growth in total loan disbursements, which is nearly two times faster than the economy’s gross domestic product growth.

“Further, the recovery of many businesses since the (pandemic) helped ease the NPL ratio and further increased the demand for loans to fund more investments for new businesses and for expansion projects,” he said.

Ricafort also said the  possible policy rate cuts in the next three years could help reduce borrowing costs. This would help improve business and overall economic conditions, thereby reducing the NPL ratio.

NPLs or bad debts refer to past due loan accounts where the principal or interest is unpaid for 90 days or more after the due date.

Based on central bank data, banks’ bad loans climbed by 14.8 percent to P502.4 billion in June from P437.6 billion in the same month last year. The banking industry’s bad debts have been increasing in the past three months from P464.7 billion in December.

The growth in the banking sector’s total loan portfolio has risen over the past year, even as the BSP raised interest rates by a total of 450 basis points from May 2022 to October 2023 to fight inflation and stabilize the peso against the dollar.

Philippine banks booked a 12.6-percent increase in loan disbursements, to P14.3 trillion in June from P12.7 trillion a year ago, due to the impact of the yearlong tightening cycle that saw the benchmark interest rate hit a 17-year high of 6.5 percent.

The banking sector’s past due loans grew by 17.8 percent to P614.2 billion from P521.4 billion, while restructured loans went down by 6.3 percent to P293.6 billion from P313.3 billion.

Amid the rising soured loans and past due loans, Philippine banks beefed up their loan loss reserves by 7.7 percent to P479.4 billion in June from P445.1 billion in the same month last year.

This translated to a loan loss reserve level of 3.35 percent and an NPL coverage ratio of 95.41 percent.

The NPL ratio for universal and commercial banks stood at 3.21 percent in June, lower than 3.26 percent in May. It also marked the lowest since the 3.15 percent in April.

The NPL ratio of thrift or mid-sized banks went down to 6.74 percent in June from 6.99 percent a month prior.