Bad loans from banks could rise until the first half of next year


Lawrence Agcaoili (The Philippine Star) – August 4, 2021 – 12:00 am

MANILA, Philippines – Bad loans from banks are expected to rise through the first half of next year as the country continues to struggle to contain the pandemic.

In a roundtable discussion on virtual media, Joyce Ong, analyst at Moody’s Investors Service, said the Philippine banking sector is expected to suffer from a high non-performing loan (NPL) ratio until June of next year. . The banking sector’s NPL ratio is expected to reach 6% this year.

“NPLs will continue to rise at least until the first half of 2022. What is rather uncertain at the moment is whether things will start to improve again in the next few months,” Ong said.

She said the gross NPL ratio of Philippine banks had risen steadily from a low base in 2020 and even more so in 2021 with the expiration of debt relief measures under Republic Law 11469 or the Bayanihan to Heal as One Act (Bayanihan 1) and RA 11494 or the Bayanihan to recover in one act (Bayanihan 2).

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed that the gross NPL ratio of Philippine banks accelerated for the fifth consecutive month to reach the highest level in almost 13 years at 4.49% in May from 4 , 35% in April. This is the highest level since the 4.52% recorded in September 2008.

Bad loans in the banking sector jumped 83% to 479.48 billion pesos in May from 262 billion pesos the same month last year, while the allowance for credit losses jumped 50.4% to 383 , 39 billion pesos against 254.94 billion pesos.

Ong said the Philippine banking system is experiencing a prolonged reduction in business activity which has affected the quality of the industry’s assets over the past 18 months.

“It really raises the question of whether the protracted disruptions have eroded the progress that Philippine banks have made over the past decade. With Bayanihan expiring, we believe asset quality will continue to weaken this year and NPLs will rise to around 6% by the end of 2021, ”Ong said.

According to Moody’s, the prolonged reduction in business activities, the resurgence of COVID-19 infections and the strengthened community quarantine in the National Capital Region (NCR) from August 6 to 20 would continue to weigh on feelings and put pressure on straining the debt repayment capacity of borrowers. , in particular small and medium-sized enterprises (SMEs).

Ong said Moody’s now expects bank lending from Philippine banks to remain stable instead of increasing 5% this year with the reimposition of stricter lockdown and quarantine measures in the NCR to slow the spread of the more contagious Delta variant.

“Credit growth is likely to remain moderate below pre-pandemic levels as companies halt their expansion plans in the midst of the pandemic and internal capital generation by banks will continue with growth over the medium term,” Ong said.

The latest BSP data showed bank lending declined for the seventh consecutive month, albeit at a slower pace of 2% in June compared to 4% in May.

The debt watcher said he expects the profitability of Philippine banks to remain stable at lower levels, but not return to pre-pandemic levels.

Ong said the strength of the conglomerates that control most of the nation’s largest lenders would cushion the impact of the pandemic.

“We still believe that the large conglomerates would continue to perform well and that would certainly help them in terms of limiting the level of debt deterioration resulting from the quality of their assets,” she said.

Leave A Reply

Your email address will not be published.