Bad loans ratio dips below 4% in April – Manila Bulletin

More borrowers are paying their debts on time resulting in a three-month low in banks’ non-performing loans (NPL) ratio in April, which fell below four percent for the first time since December 2021.

Based on Bangko Sentral ng Pilipinas (BSP) data, NPL ratio dropped to 3.93 percent from 4.08 percent in March. It was also lower compared to 4.35 percent same period in 2021. It was in December when the soured loans ratio was near the April number at 3.97 percent.

NPLs, which are unpaid loans for more than 90 days, was down by 3.49 percent to P447.44 billion in April from P463.66 billion same time in 2021. It was also lower by 2.83 percent from P460.46 billion in March.

NPLs are also considered as impaired accounts which need provisions to avoid losses for the banks. In April, the NPL coverage ratio stood at 90.60 percent, much higher compared to 81.48 percent April 2021, and from March this year of 88.38 percent.

Banks’ allowance for credit losses were up by 7.30 percent to P405.39 billion from P377.81 billion last year, but it was lower compared to P406.97 billion in the previous month.

The industry’s total loan portfolio in April increased by 6.98 percent to P11.39 trillion from same period last year of P10.65 trillion. It was higher compared to March this year’s P11.28 trillion.

Meantime, banks’ past due ratio which is the delinquency rate also fell by 4.65 percent in April compared to 5.39 percent last year and by 4.83 percent in March.

Past due loans were lower by 7.8 percent to P429.29 billion from P574.13 billion in 2021, and by 2.8 percent from March’s P544.59 billion.

Loan accounts are considered past due if unpaid on due dates but banks may provide a cure period within 30 days to allow borrowers to catch up.

On Wednesday, Fitch Ratings released a revised outlook on the Philippine banking system to “stable” from “negative” on expectations of sustained loan demand, higher central bank rates, and a recovering economy this year

A Fitch report said that while the local banking system’s operating environment is stable, the credit watchdog has however retained its negative outlook on its rated lenders’ Issuer Default Ratings because of the “BBB/Negative” sovereign rating.

The credit rating agency revised the overall banking system’s operating environment score to stable from negative because of the government’s containment of the Covid-19 pandemic and continued GDP expansion which grew by 8.3 percent in the first quarter from 5.7 percent in 2021.

Fitch said with a sustained recovery, banks will take advantage of loan growth and the recovering loan demand. As of April, bank lending has increased by 10.1 percent year-on-year, faster than March’s 8.9 percent.

As of end-March, banks’ cumulative net profits grew by 26.3 percent to P66.34 billion from same time in 2021 of P52.52 billion. The industry also reduced its bad debts written off by 72.3 percent to P951.87 million compared to what was reported last year of P3.43 billion. Writing off bad debts which are NPLs, clears banks’ balance sheets as these are considered uncollectable debts.

With the return of business activities under Alert Level 1 which is a more relaxed Covid-19 mobility restrictions, banks are receiving more borrowers while existing borrowers are gradually building up funds to avoid loan defaults.

Meantime, recovery on charged-off assets also declined by 48.24 percent to P3.59 billion from P6.94 billion in 2021.

The BSP said most banks are capable of absorbing losses under scenarios of assumed credit impairment since credit risks are sufficiently funded.