Banks’ bad loans ratio rises to over 2-year high

December 12, 2024 | 12:00am

MANILA, Philippines — The share of soured loans to the banking sector’s total loan book increased to its highest level in over two years amid elevated borrowing costs, data from the Bangko Sentral ng Pilipinas (BSP) showed. The non-performing loan (NPL) ratio of Philippine banks went up to 3.6 percent in October from three percent in September. It marked the highest in 29 months or since the 3.75 percent in May 2022.

NPLs refer to credit obligations that have not been repaid for at least 90 days past their due date. These loans are categorized as high-risk assets because they indicate a borrower’s diminished ability or willingness to meet their financial obligations.

Soured loans are a key indicator of a lender’s asset quality and pose challenges for banks as they set aside additional funds to cover potential losses, which can negatively impact profitability and liquidity.

BSP data showed that soured loans went up by 16.7 percent to P524.3 billion in October from P449.4 billion in the same month last year.

Philippine banks recorded an 11.3-percent rise in loan disbursements to P14.55 trillion in October from P13.07 trillion in the same month last year.

The banking sector’s past due loans increased by 15 percent to P640.9 billion from P557.3 billion as restructured loans slipped by 5.3 percent to P292.7 billion from P309.2 billion.

Amid the rising soured loans and past due loans, banks beefed up their loan loss reserves by 5.7 percent to P487.5 billion in October from P461.4 billion in the same month last year. This translated to a loan loss reserve level of 3.35 percent and an NPL coverage ratio of 92.9 percent.

The BSP has delivered a total of 50 basis points worth of rate cuts since August as it shifts toward a less restrictive monetary policy. This brought the key rate down to six percent from 6.5 percent previously.

BSP Governor Eli Remolona Jr. said the central bank could deliver another 25-basis-point cut during the Monetary Board’s final meeting next week. If realized, this would bring the target reverse repurchase rate to 5.75 percent, the lowest since the 5.5 percent in December 2022.

To tame inflation and stabilize the peso, the BSP raised key policy rates by 450 basis points from May 2022 to October 2023.