THE NONPERFORMING loans (NPLs) of Philippines banks may decline this year as the central bank continues to cut borrowing costs.
“NPLs will ease as interest rates drop and lower the debt service burden of clients,” First Metro Investment Corp. Head of Research Cristina S. Ulang said in a Viber message.
Philippine banks’ NPL ratio rose to an over two-year high of 3.6% in October from 3.47% in September and 3.44% a year ago, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.
This was the highest bad loan ratio since 3.75% in May 2022 and matched the 3.6% NPL ratio in June 2022.
Soured loans rose by 1.3% to P524.31 billion in October from P517.45 billion a month earlier. Year on year, bad loans jumped by 16.7% from P449.45 billion.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said banks’ NPLs may go down as loan growth accelerates amid a robust economic outlook.
The total loan portfolio of the banking system stood at P14.55 trillion at end-October, down by 2.4% from P14.9 trillion at end-September but up by 11.3% from P13.07 trillion a year prior.
Meanwhile, Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said in a Viber message that NPLs could remain manageable but see a slight uptick this year.
“Banks are expected to expand their consumer loan portfolios as demand for credit grows alongside economic recovery. However, higher exposure to consumer lending typically comes with increased credit risks, particularly in segments such as credit cards, personal loans, and auto loans, where defaults are more likely,” he said.
However, “resilient” corporate borrowers could offset asset quality risks coming from the consumer lending segment, Mr. Rivera said. “Businesses are adjusting to post-pandemic conditions and benefiting from continued infrastructure spending and economic growth.”
The BSP’s gradual easing cycle is also unlikely to significantly ease the debt burdens of those already struggling to repay their loans, he said, even as lower interest rates could provide relief to some borrowers.
“Global uncertainties, including a potential slowdown in major economies and geopolitical risks, could impact employment and income levels, particularly for OFW (overseas Filipino worker)-dependent households, adding stress to their repayment capacity,” Mr. Rivera said.
Despite these concerns, banks are expected to weather asset quality risks, he said.
“Philippine banks have strengthened their risk assessment and loan monitoring capabilities in recent years. Capital adequacy ratios remain strong, and provisions for loan losses are well-positioned to absorb potential increases in NPLs.”
The BSP has cut benchmark interest rates by 25 basis points (bps) since it kicked off its easing cycle in August, bringing its policy rate to 5.75%.
BSP Governor Eli M. Remolona, Jr. last month said that 100 bps worth of cuts this year may be “too much” and that they will likely keep reducing rates in “baby steps” due to inflation concerns. — A.M.C. Sy
