Banks’ nonperforming loans continue to climb in June

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NONPERFORMING LOANS (NPLs) held by Philippine banks continued to pick up in June, reflecting how the pandemic remains a burden on lenders’ asset quality and borrowers’ capacity.

Data released by the Bangko Sentral ng Pilipinas (BSP) on Tuesday showed soured loans climbed 73.9% to P482.991 billion in June from P277.806 billion in the same month in 2020. Bad loans also inched up by 0.7% from the P479.481 billion logged in May.

Despite the increase in bad loans held by lenders, the NPL ratio slightly eased to 4.48% from the 13-year high of 4.49% in May. However, it was still much higher than the 2.57% seen in June 2020.

BSP officials earlier said they expect the NPL ratio to hit “a little over 5%” by end-2021.

Banks across Southeast Asia may continue to face asset quality risks amid the resurgence of infections and containment measures imposed to control the pandemic, Moody’s Investors Service said.

“Thailand, the Philippines, and Indonesia will be hit the hardest in the region because of heightening uncertainties around the reopening of their economies, which makes banks in these countries most vulnerable,” Moody’s said in a note on Tuesday.

For consumption-driven economies like the Philippines and Indonesia, Moody’s said muted demand will impact the debt repayment capacity of borrowers with businesses that are unable to operate due to quarantine restrictions. These makes borrowers from industries such as wholesale and retail trade, dining, hospitality and other travel-related businesses, the most at risk.

BSP data showed that the total loan portfolio of the entire banking industry in June dipped by 0.4% to P10.775 trillion from P10.818 trillion a year earlier. Month on month, it went up 1% from the P10.669 trillion in May.

Past due loans increased by 51.2% to P577.06 billion from P381.426 billion a year ago. These borrowings made up 5.36% of the industry’s portfolio, from 3.53% in June last year.

Restructured loans in June surged by 575% to P328.647 billion from P48.669 billion a year earlier. This brought the ratio to 3.05% from 0.45%.

Banks continued to boost loan loss reserves which rose by 31% to P397.79 billion from P302.926 billion in the same month of 2020. Its ratio to the loan portfolio increased to 3.69% from 2.8%.

Meanwhile, lenders’ NPL coverage ratio — which is an indicator of allowance for potential losses due to bad loans — declined to 82.36% from 109.04%

For the months ahead, concerns on asset quality will continue to affect banks’ risk appetite to extend more loans, Asian Institute of Management economist John Paulo R. Rivera said. He noted the increasing infections and the reimposed lockdowns could cause risk-off sentiment for banks.

Business activities are again affected by the two-week lockdown imposed in Metro Manila and some provinces until Aug. 20.

“If the risks would persist, we can expect NPL to rise and banks being more risk averse in lending to minimize defaults. Containing the recent surge and continuous and rapid vaccination are keys to restoring confidence in lending,” Mr. Rivera said in a Viber message.

Outstanding loans by big banks dropped for the seventh straight month in June by 2%, although it also marked the second consecutive month of softer decline. — Luz Wendy T. Noble