Bad debts reduced by 14% as banks restructure loans

Lawrence Agcaoili – The Filipino Star

September 10, 2022 | 00:00

MANILA, Philippines — Distressed loans from banks in the Philippines continued to decline, falling 14.4 percent to 416.73 billion pesos at the end of July, from 487 billion pesos in the same period last year, as the he economy is still recovering from the impact of the pandemic.

The latest data from the Bangko Sentral ng Pilipinas (BSP) showed that banks restructured 341.97 billion pesos of loans in July, 3.6% more than the 330.16 billion pesos a year earlier. .

Credit growth also accelerated to almost 9%, with banks disbursing 11.77 trillion pesos at the end of July, compared to 10.8 trillion pesos at the end of July last year.

Similarly, delinquent loans from the banking sector decreased by 14.4% to P491.29 billion from P573.78 billion.

This led to a decline for the fifth consecutive month in banks’ share of bad loans in total loans, to a 21-month low of 3.54% in July from 3.6% in June.

This was the lowest non-performing loan (NPL) ratio for the country’s banking sector since the 3.51% recorded in September 2020. It was also below the peak of a 13-year high of 4.51 % recorded in July last year.

Meanwhile, the provision for credit losses rose 3.8 percent to 416.73 billion pesos at the end of July this year, from 401.5 billion pesos a year ago. This translated into a loan loss reserve level of 3.54% and a bad debt coverage rate of 99.16%.

The BSP earlier predicted that the NPL ratio of Philippine banks would accelerate and peak at 8.2% for this year.

The Philippine economy continues to reopen with the lifting of quarantine and COVID lockdown protocols, leading the country out of the pandemic-induced recession with gross domestic product (GDP) growth of 5.7% on the year last after a 9.6% decline in 2020.

GDP grew by 7.8% in the first half after disappointing growth of 7.4% in the second quarter, slower than the 8.2% recorded in the first quarter, due to the impact of the acceleration of the inflation and the impact of the Russian-Ukrainian war. supply constraints in China.

Economic managers have set a GDP growth target of 6.5-7.5% for this year and 6.5-8% from next year through 2028.

“The resumption of economic activities has eased concerns about the quality of the bank loan portfolio,” the BSP said in the business sector outlook survey for the second half of 2021.

Based on the results of the survey of bank presidents and CEOs, the percentage of respondents expecting the NPL ratio to exceed 5% in the next two years fell to 57.3% from 63 .5% in the second half of 2020.

Among universal and commercial banks, the projection of the highest NPL ratio increased to a range above 2-3% with 41.2% of respondents, rising from 21.4% instead of 3-5% with 29, 4%, compared to 42.9%.

According to the survey, the majority of savings, rural and cooperative banks consistently expect high NPL ratios, but with marginal improvement.

Similarly, about 30.1% of banks surveyed, mostly niche marketers like foreign, savings, rural and commercial banks, expect a restructured loan ratio of more than 5%, while 23% of respondents , in particular the big banks, foresee a more conservative ratio between 1 and 2%. .

“The ratio of restructured loans to total loans demonstrates the propensity of banks to change loan terms when a borrower faces financial difficulties due to unforeseen events like the COVID-19 pandemic and natural disasters,” the central bank said.


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