Banks’ NPL ratio climbs in January due to tighter mobility restrictions

THE NON-PERFORMING LOAN (NPL) of the banking sector increased in January after Iffive consecutive months of decline, rereflecting the impact of a rerestrictions that month.

Preliminary data released Tuesday by the Bangko Sentral ng Pilipinas (BSP) showed that the gross NPL ratio of the Philippine banking system fell from 3.97% in December to 4.14% in January. It was also higher than the 3.72% in the same month of 2021.

In January, NPLs rose 2 percent to 461.66 billion pesos from 452.453 billion pesos a month earlier and 16.7 percent from 395.465 billion pesos a year ago.

The resumption of downgraded loans could be attributed to tighter restrictions imposed in the capital and other regions in January amid the spike in coronavirus cases caused by Omicron, said the chief economist of the UnionBank of the Philippines, Inc. Ruben Carlo O. Asuncion.

“We have seen this before when infections increase and the government responds with more restrictions, mobility and economic activity are affected and cause uncertainty for people,” Asuncion said in a message. Viber.

The government placed Metro Manila and some provinces under Alert Level 3 in January as cases spiked due to the more transmissible Omicron variant, causing economic activity to slow.

As bad debts increased, Philippine banks’ loan portfolio fell 2.2% month-on-month to 11.142 trillion pesos in January from 11.391 trillion. pesos, but increased by 4.9% compared to 10,618,000 billion pesos the previous year.

Delinquent loans rose 6% to 539.425 billion pesos in January from 508.959 billion pesos a year ago. This brought the ratio to 4.84% from 4.79% a year ago.

Meanwhile, restructured loans amounted to 356.449 billion pesos, up 81.8 percent from 196.055 billion pesos last year. These borrowings represented 3.2% of the industry’s total loan portfolio, compared to 1.85% previously.

Amid rising bad debts, banks increased their provision for credit losses by 8.5 percent to 402.89 billion pesos from 371.173 billion pesos. This is equivalent to 3.62% of bank loans against 3.5% a year earlier.

The banking sector’s NPL coverage rate was 87.27% in January, down from 93.86% last year.

Mr Asuncion is optimistic that bad debts will decline again as economic activity improves following the easing of mobility restrictions. However, the Russian-Ukrainian war could shake consumer and business confidence if it continues to escalate, he warned.

“This may alter the baseline outlook and lead to a reduction in recent growth expectations which again mayffect people’s incomes and ability to pay,” he said.

Credit growth in January came in at 8.5%, the fastest since printing 9.6% in June 2020. Producer loans rose 9.6%, while consumption increased for the Iffirst time in 13 months by 0.1%.

The banking sector’s NPL ratio reached a 13-year high of 4.51% in July and August 2021, which is still below the 17.6% seen in the aftermath of the Asian financial crisis in 2002. — Luz Wendy T. Noble

Sallie R. Loera