By Katherine K. Chan
THE Philippine banking industry’s nonperforming loan (NPL) ratio decreased to a three-month low in June, even as financial institutions continued to broaden their lending portfolios, according to data from Bangko Sentral ng Pilipinas (BSP).
BSP data indicated that banks’ gross NPL ratio fell to 3.34% in June from 3.38% in May, and 3.51% in the same month last year.
This was the lowest NPL ratio recorded in three months, following the 3.3% in March.
Loans are categorized as nonperforming when they remain unpaid for at least 90 days past the due date. These are classified as risky assets since borrowers are less likely to make payments.
The total amount of nonperforming loans slightly increased by 0.5% to P530.29 billion in June from P527.45 billion in May. Troubled loans also rose by 5.5% year-on-year from P502.42 billion.
The aggregate loan portfolio of the banking sector amounted to P15.88 trillion as of the end of June, rising by 1.69% from P15.62 trillion at the end of May and increasing by 10.9% from P14.32 trillion one year prior.
Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., noted that the effects of policy rate reductions are starting to influence bank lending rates.
“We have observed reduced interest rates, which may facilitate borrowers in fulfilling their obligations,” he stated.
The central bank has thus far decreased borrowing costs by a total of 125 basis points (bps) since initiating its easing cycle in August of the previous year. In June, the Monetary Board lowered rates by 25 bps, bringing the benchmark rate to 5.25%.
“The slight reduction in the NPL ratio might indicate stable repayment capabilities among borrowers, bolstered by low inflation, consistent employment, and resilient domestic demand,” remarked John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, in a Viber message.
Mr. Rivera also linked the declining ratio to stricter lending standards adopted by universal and commercial banks.
“Nevertheless, a significant factor contributing to the easing of NPLs is the considerable growth in loan volume for the month, which rose by approximately 12% year-on-year,” stated Mr. Erece. “This led to a decrease in the nonperforming loans ratio relative to overall loans, as the denominator rose significantly.”
On the other hand, past due loans rose by 1.75% to P670.5 billion in June from P659 billion in May. Year-on-year, it increased by 9.17% from P614.17 billion.
Past due loans represented 4.22% of the system’s total loan portfolio as of June, unchanged from end-May but below the 4.29% recorded a year prior.
Restructured loans, however, fell by 0.44% to P312.03 billion in June from P313.39 billion in May, while rising by 6.27% from P293.62 billion in June 2024.
This segment accounted for a smaller portion of the industry’s total loan portfolio at 1.96%, down from 2.01% in the preceding month and 2.05% from the same period last year.
Banks’ loan loss reserves incrementally climbed by 1.42% to P505.91 billion in June from P498.83 billion in May, and by 5.5% from P479.46 billion one year earlier.
The loan loss reserve ratio in June remained unchanged from May at 3.19%, but decreased from 3.35% in the same month of 2024.
In the meantime, lenders’ NPL coverage ratio, which measures the allowance for anticipated losses due to defaulted loans, slightly rose to 95.4% from 94.57% in May. Year-on-year, it decreased from 95.43%.
“A potential policy rate cut later this month could reduce borrowing costs, stimulate loan growth, and assist more borrowers in managing their debt,” Mr. Rivera commented.
BSP Governor Eli M. Remolona, Jr. mentioned that a rate reduction is “quite likely” at the Monetary Board’s next gathering on Aug. 28.
“However, accelerated credit growth also means banks will have to manage credit risks diligently to prevent a rebound in NPLs,” Mr. Rivera added.
Conversely, Mr. Erece remarked that banks’ bad loan ratios might continue to shrink over the coming months.
“Beyond the anticipated effects of rate cuts, we may also anticipate an uptick in borrowing driven by end-of-year expenditure,” he stated.
