By Luisa Maria Jacinta C. Jocson, A reporter
PHILIPPINE Banking System’s Net non-performing loans (NPL) decreased in September, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.
The banking industry’s net NPL fell to 3.47% in September from a two-year high of 3.59% in August. However, it was still 3.4% higher than the same period in 2023.
This is also the lowest NPL ratio five months or from 3.45% posted in April.
A loan is considered non-performing if it remains unpaid for at least 90 days after the due date. These are considered risky assets as borrowers are less likely to repay.
BSP data showed bad loans rose 0.9% to P517.45 billion in September from P512.7 billion last month.
Year-on-year, outstanding loans jumped 16.5% from P444.3 billion.
The total loan portfolio of Philippine banks stood at P14.9 trillion in September, up 4.2% from P14.3 trillion in August. It also increased by 14.1% from P13.06 trillion last year.
Outstanding loans increased 0.2% to P632.9 billion in September from P631.4 billion in the previous month. Year-on-year, outstanding loans increased by 15% from R549.9 billion.
This brought the average loan-to-value ratio down to 4.25% in September, down from 4.42% in August but up from 4.21% a year earlier.
Adjusted loans increased 0.5% to P294.5 billion in September from P293.2 billion in the previous month. However, it decreased by 4.1% from P307.2 billion last year.
Restructured loans made up 1.98% of the industry’s total loans in September, down from 2.05% the previous month and 2.35% a year earlier.
In September, banks’ money loss reserves are approx flat (0.07%) to P482.8 billion from P482.5 billion last month. Meanwhile, it increased by 4.8% from P460.8 billion year-on-year.
This reduced the loan loss ratio to 3.24%, down from 3.37% last month and 3.53% in the same month in 2023.
Lenders’ NPL coverage ratio, which measures the potential allowance for bad loans, fell to 93.31% in September from 94.11% in August and 103.71% last year.
“Banks’ NPL ratio has improved amid rapid growth in loans in recent months that has boosted the bottom line and helped lower the NPL ratio statistically,” said an economist at Rizal Commercial Banking Corp. Michael L. Ricafort in a Viber message.
The latest data from the BSP showed bank loans grew 11% year-on-year to P12.4 trillion in September, its fastest pace in almost two years or from 13.7% in December 2022.
The level of NPL may continue to improve in the coming months, said Mr. Ricafort.
“The recent reduction in the RRR (requirement ratio) which has effectively injected about P400 billion into the financial system will allow banks to increase their lending which will lead to faster loan growth and statistically will lead to lower NPL levels,” he said.
The BSP lowered the RRR for international and commercial banks and non-banking financial institutions with banking-like activities by 250 basis points (bps) to 7% from 9.5%, effective Oct.
Further rate cuts by the US Federal Reserve and the Philippine central bank will also lead to more demand for loans, Mr. Ricafort.
“Therefore, the quality of bank assets will still improve in terms of further expansion of the NPL ratio of banks, in an environment made appropriate by the Fed’s easing and the easing of the local policy rate in the coming months,” he added.
Last week, the US central bank lowered its policy rate by a quarter of a percentage point to 4.5-4.75%.
Meanwhile, the Bangko Sentral ng Pilipinas (BSP) has so far reduced borrowing costs by 50 bps this year since it began its easing cycle in August.
The Monetary Board delivered a 25-bp rate cut at each of its August and October meetings, bringing the key figure to 6%. The final review of its annual policy is scheduled for Dec. 19.
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