By Keisha B. Ta-asan, Reporter
SOURED LOANS held by Philippine banks declined year on year as of end-August, bringing the nonperforming loan (NPL) ratio to a four-month low despite elevated borrowing costs.
Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the banking sector’s gross NPL ratio slipped to 3.42% from 3.43% as of end-July and from 3.53% in the same month last year.
The NPL ratio in August was the lowest in four months or since 3.41% in April.
Bad loans declined by 5.9% year on year to P442.9 billion as of end-August. However, it was 0.6% higher than P440.1 billion seen at end-July.
Loans are considered nonperforming once they remain unpaid for at least 90 days after the due date. They are deemed as risk assets given borrowers are unlikely to settle such loans.
“The NPL ratio continued to edge lower as improved income streams allow borrowers to service debt requirements,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail on Tuesday.
BSP data showed banks’ gross loan portfolio jumped by 9.4% to P12.96 trillion in August from P11.84 trillion a year ago. It also went up by 1.09% from P12.82 trillion in July.
Meanwhile, past due loans climbed by 8.4% year on year to P538.19 billion in August, but the ratio dropped to 4.15% from 4.19% a year ago.
Restructured loans declined by 4.3% to P306.05 billion as of end-August. This accounted for 2.36% of banks’ loan portfolio, slightly lower than 2.7% in the same month in 2022.
Banks continued to beef up their loan loss reserves by 9.14% to P456.27 billion as of end-August from P418.05 billion a year ago. This brought the loan loss reserves ratio to 3.52% from 3.53% a year earlier.
The industry’s NPL coverage ratio also improved to 85.98% from 83.65% in 2022.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the lower August NPL ratio to the continued growth in loans that broadened the base.
Separate data from the BSP showed outstanding loans issued by big banks expanded by 7.2% year on year to P11.06 trillion in August. However, the growth in August eased from the 7.7% print in July and was the slowest in 20 months or since 4.8% in December 2021.
The economic reopening also boosted the incomes and livelihood of borrowers, which improved their ability to repay loans, Mr. Ricafort said.
However, consumers may be burdened by elevated prices and higher borrowing costs, he added.
“Going forward, sustained growth for the economy should help keep the NPL ratio on the downward path although the weight of elevated borrowing costs could eventually lead to the sustained increase in NPLs in the coming months,” Mr. Mapa said.
The Monetary Board has kept the benchmark interest rate at 6.25% since March. This was after hiking borrowing costs by 425 basis points from May 2022 to March 2023 to tame inflation.
The NPL ratio stood at 3.16% as of end-December 2022, lower than 3.99% recorded as of end-2021.