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Business

Banks’ bad loans highest in 2 years

Keisha Ta-Asan - The Philippine Star
Banks� bad loans highest in 2 years
Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) showed that the non-performing loan (NPL) ratio of Philippine banks rose from the revised 3.51 percent in June – the highest in 25 months or since the 3.6 percent in June 2022.
STAR / File

MANILA, Philippines — The share of bad loans to the banks’ total loan book inched up to 3.58 percent as of July, its fastest pace in over two years, amid higher borrowing costs.

Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) showed that the non-performing loan (NPL) ratio of Philippine banks rose from the revised 3.51 percent in June – the highest in 25 months or since the 3.6 percent in June 2022.

UnionBank chief economist Ruben Carlo Asuncion said the uptick in NPLs could be due to the restrictive monetary environment amid the BSP’s rate hikes from May 2022 to October 2023.

“With high interest rates, both consumers and firms find it expensive to refinance debt and end up failing obligations eventually,” he said.

Based on central bank data, soured loans went up by 15.5 percent to P508.12 billion in July from P440.07 billion in the same month last year.

Philippine banks also recorded a 10.8-percent rise in loan disbursements, to P14.21 trillion in July from P12.82 trillion a year ago.

The banking sector’s past-due loans also jumped by 18.4 percent to P625.71 billion from P528.62 billion as restructured loans slipped by 4.5 percent to P291.08 billion from P304.71 billion.

Amid the rising soured loans and past-due loans, banks beefed up their loan loss reserves by 6.4 percent to P479.24 billion in July from P450.24 billion in the comparable year-ago period.

This translated to a loan loss reserve level of 3.37 percent and an NPL coverage ratio of 94.32 percent.

However, Asuncion said that the rise in soured loans “does not spell doom” for the country’s financial system.

“It is a phase that is expected and (borrowers) may consequently recover as monetary policy rates normalize,” he said.

In a move to shift to a less restrictive monetary policy, the BSP’s Monetary Board cut borrowing costs by 25 basis points last month, bringing the key rate to 6.25 percent. This was the central bank’s first rate cut in almost four years, the last being in November 2020.

Prior to this, the BSP kept its policy rate steady for six straight meetings since November 2023. From May 2022 to October 2023, the Monetary Board hiked rates by 450 basis points to tame inflation.

The industry’s NPL ratio stood at 3.24 percent at end-2023, slightly higher than 3.16 percent as of end-2022.

The ratio peaked at 4.51 percent in July and August 2021, at the height of the COVID-19 pandemic.

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