Banks’ soured loans climb in June

banks soured loans climb in june - Banks’ soured loans climb in June

By Luz Wendy T. Noble, Reporter

LOCAL BANKS saw soured loans rise by a fourth as of end-June, reflecting the economic impact of the coronavirus pandemic, data from the central bank showed.

According to preliminary data from the Bangko Sentral ng Pilipinas (BSP), gross nonperforming loans (NPLs) jumped by 26.7% to P273.6 billion in June from the P215.9 billion in the same month a year ago. This is against the industry’s total loan book that slipped 1.27% to P10.82 trillion in June from the P10.96 trillion in June 2019.

NPLs are loans left unsettled at least 30 days past due date. These are seen as risky assets as there is little chance of borrowers settling their outstanding balances, which would mean losses for the lender.

The gross NPL ratio as of end-June stood at 2.53%, inching up from 2.43% in May and the 2.1% seen a year ago.

The quality of the banking industry’s portfolio is anticipated to deteriorate amid the ongoing pandemic crisis, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said.

“Based on BSP’s engagement with the banks, the NPL ratio of the banking system is estimated to increase to around 4.6% by end-December 2020,” Ms. Fonacier said in a text message to BusinessWorld.

“Banks are also expecting an uptick in NPLs by yearend as borrowers’ capacity to pay have been weakened by disruptions in their cash flows,” she added.

BSP data showed restructured loans stood at P48.47 billion in June, up P30.38 million from May and 25.7% higher than the P38.56 billion in the same month in 2019. With this, the ratio of restructured loans to the industry’s total loan book was at 0.45% for the second straight month and slightly higher than the 0.37% seen in June 2019.

Meanwhile, past due loans in June declined 33.4% to P375.27 billion from the P563.7 billion in May but rose 26% from the P296.89 billion a year ago. The industry’s past due loan ratio in June was at 3.47%, going down from the 5.22% in May but inching up from the 2.89% in the same month of 2019.

Amid the deteriorating quality of loan portfolios, the banking industry boosted its provisions for credit losses by 48.5% year on year to P300.3 billion in June.

Banks’ NPL coverage ratio, which measures their allowance for potential losses due to soured loans, was at 109.7% in June, up from 97.31% the prior month and the 93.29% seen in the same month a year ago.

Meanwhile, capital adequacy ratio was at 12.73% in June, versus 12.76% in June 2019 and the 12.66% in the prior month. The June level is well beyond the 10% minimum required by the central bank.

BSP officials have said they do not expect the current crisis to increase banks’ bad loan ratio to the levels seen in previous crises. The local industry’s NPL ratio peaked at 17.6% in 2002 in the aftermath of the Asian financial crisis.

Analysts expect NPLs to rise, but said lenders continue to have healthy buffers to guard against the impact of the pandemic.

“Banks continue to have healthy metrics and formidable buffers to weather the crisis,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

For his part, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said banks’ heightened credit loss provisions will help safeguard their standing.

“These were meant to cushion the banking industry precisely from souring loans because of the economic impact brought about by the coronavirus pandemic,” he said in an e-mail.

Mr. Mapa said while he expects the industry to remain strong, a protracted progression of the crisis could pose a threat to banks’ solid footing.

“Eventually, if unemployment surges and GDP (gross domestic product) remains in contraction, even the formidable banks will come under pressure,” Mr. Mapa said.

The economy is officially under technical recession as GDP in the first two quarters contracted by 0.7% and 16.5%, respectively. The government is expecting full-year GDP to shrink by 5.5%.

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