Banks’ bad loan ratio rises to 3.35% in July
The share of bad loans held by Philippine banks edged higher in July as some households and businesses continue to feel the strain of high borrowing costs and elevated inflation.
Manila, Philippines — In July, the portion of bad loans owned by Philippine banks increased slightly, signaling ongoing financial strain for some households and businesses. According to preliminary data from the Bangko Sentral ng Pilipinas (BSP), the non-performing loan (NPL) ratio climbed to 3.35 percent, marking a two-month high while still below the 3.4 percent level from the previous year.
NPLs are loans with payments, including principal and interest, that have remained unpaid for at least 90 days past their due date. The rise in the NPL ratio, while a concern, was tempered by a 9.3 percent increase in gross bad loans to P585.08 billion in July, compared to P535.45 billion a year earlier. This rise was offset by a 10.6 percent growth in the banks' overall loan portfolio to P17.45 trillion, helping to keep the NPL ratio below its level from a year ago.
Jonathan Ravelas, a senior adviser at Reyes Tacandong & Co., pointed out that the increase in bad loans reflects the lingering financial pressure on certain borrowers due to prolonged high borrowing costs and inflation. He noted that while the economy continues to grow, all sectors and borrowers are not recovering at the same pace, affecting repayment capacity in some areas.
Additionally, the increase in bad loans is expected as banks extend more credit. Past due loans, or those with missed payments not classified as non-performing, rose by 7.4 percent to P738.77 billion in July. However, the past due loan ratio improved to 4.23 percent from 4.36 percent. Restructured loans, involving modified payment terms to assist borrowers, increased by 3.7 percent to P341.95 billion.
The restructured loan ratio stood at 1.96 percent, down from 2.09 percent a year earlier. Banks maintained buffers against potential loan losses, with the allowance for credit losses increasing by 5.6 percent to P540.9 billion. The NPL coverage ratio, indicating how much of banks' bad loans could be covered by reserves, was 92.45 percent in July, slightly lower than 95.63 percent a year ago but remaining steady from the previous month.
Despite these pockets of stress, Ravelas stated that Philippine banks remain well-capitalized and adequately provisioned, with a manageable NPL ratio by historical standards. Moving forward, he emphasized the importance of continued economic growth, declining inflation, lower interest rates, and prudent credit risk management to improve borrowers' debt-servicing capacity.
Written by urgent.news from Philippine Star Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
