Bad debts of banks are adequately managed — BSP – Manila Bulletin


Banks’ strong risk governance has played a crucial role in their ability to manage bad loans, which has seen a downward trend, according to a central bank official.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said that simulations carried out by the BSP indicated a non-performing loan (NPL) ratio of 5-6% by the end of 2021, but that in November, the ratio had fallen to 4.35%. , the third month in a row that it has fallen.

“BSP is calibrating internal simulations as more data becomes available to ensure they take into account the latest developments,” Fonacier said in an email to the Manila Bulletin. “The BSP will also continue to monitor the operations and economic activities of households and enterprises, as well as their demand for credit,” she added.

Based on BSP’s NPL projections for 2021, the ratio could be between 5 and 6% using simulations under three different scenarios: “low”, “moderate” and “extreme”. The central bank’s maximum NPL estimates are conservative estimates using the 1997-98 Asian financial crisis as the base experiment.

Fonacier explained that the scenarios “do not take into account the sound financial situation nor the solid risk governance of the banks entering the COVID-19 crisis”. She also failed to take into account BSP’s prudential policy reforms over the years to promote prudent risk-taking behavior, including sound credit risk management in banks, she said. declared.

In addition, Fonacier said the projections under the “extreme” scenario did not take into account the impact of BSP’s extraordinary relief measures which “relaxed various prudential requirements with the aim of inducing banks to provide equivalent financial relief to borrowers and to continue lending to vulnerable segments of society.”

“These measures provide banks with flexibility in managing their operations and the financial ability to tailor loan terms to affected borrowers based on their projected cash flows to increase the likelihood of loan recovery,” said Land.

The banks’ NPL ratio continued to decline in November 2021 to 4.35% from 4.42% in October. The last time the ratio was at the 4.35% level was in April 2021.

Based on BSP data, the NPL ratio first spiked to the 4% level in February last year when it rose to 4.08% from 3.72% in January. It rose steadily until reaching its peak of 4.51% in July and August, before falling back to 4.44% and then to 4.42% in September and October.

Total NPLs that are loan accounts that are more than 30 days past due and impaired reached 481.88 billion pesos in November from 483.98 billion pesos in October.

At the same time, the banks’ NPL coverage rate also improved to 87.13% in November from 85.41% in October. Banks continue to provide adequate provisions for loan losses. Provision for credit losses amounted to P419.86 billion in November compared to P413.37 billion in October.

BSP’s simulations earlier indicated a possible peak of 8.2% in the NPL ratio for this year. However, the central bank said the NPL ratio will continue to be manageable due to the prudent credit risk management standards of local banks and the operationalization of the Financial Institutions Strategic Transfer (FIST) law which will help banks to get rid of their non-performing assets. The FIST Act will also reduce the NPL ratio by approximately 0.6 to 5.8 percentage points.




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