Banks’ bad loans seen to peak in Q2

MANILA, Philippines — BDO Unibank Inc. is expecting the soured loans of the banking industry to peak in the second quarter of next year as banks continue to extend assistance to borrowers severely affected by the pandemic.

Nestor Tan, president and chief executive officer of BDO, told The STAR the industry’s non-performing loans (NPLs) would continue to rise until the second quarter of 2021 as banks ensure a strong and conservative balance sheet while preparing for business continuity and operational resiliency amid the global health crisis.

“NPLs industry-wide are expected to peak in the second quarter of 2021,” Tan said via e-mail, assuming the crisis is addressed with the availability of a COVID vaccine and supported by an economic rebound.

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According to the Bangko Sentral ng Pilipinas (BSP), the banks’ gross NPLs, or the past due loan accounts where the principal or interest is unpaid for 30 days or more after due date, surged by more than 60 percent to P364.67 billion as of end-September from P227.6 billion in the same period last year, while the sector’s total loan book inched up by 1.6 percent P10.73 trillion from P10.56 trillion.

This translated to a seven-year high gross NPL ratio of 3.4 percent in September from 2.84 percent in August due to the economic fallout from the COVID-19 pandemic.

This was the highest since the 3.41 percent recorded in July 2013. The bad loan ratio of the banking industry has steadily increased since the 2.16 percent recorded in January.

The NPL ratio of the Philippine banking system ranged from three to 3.4 percent in the first half of 1997 or prior to the Asian financial crisis and peaked at 18.6 percent in 2001.

The Basel standards adopted by the BSP, the continued reforms in the banking sector, as well as initiatives on credit risk-taking activities, largely contributed to the improvement in the banking industy’s NPL ratio to 3.6 percent in end-2009 from 14.7 percent in end-2002.

Statistics showed the industry’s provision for loan losses surged by 60 percent to P334.57 billion in end-September from P209.07 billion in the same month last year.

Tan pointed out the amount of provisioning depends on a bank’s level of conservatism.

“Some banks, like BDO, anticipate the worst, while other banks will take it as they come,” he said.

For one, BDO allocated a record P23.83 billion for potential loan losses from January to September or 5.6 times last year’s P4.25 billion.

BDO’s asset quality remained stable with gross NPL ratio of 1.97 percent and an NPL cover of 138 percent.

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The 60-day debt moratorium mandated under Republic Act 11494 or the Bayanihan to Recover as One Act is scheduled to lapse this month.

“We continue to help client borrowers with temporary liquidity problems through loan payment extension or loan rescheduling or restructuring, while re-assessing our exposures to those with solvency or sustainability problems,” Tan said.

Tan added among the sectors badly affected by the pandemic are the transport, tourism and travel as well as affiliated industries.

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Article and Photo originally posted by Philippine Star last December 2, 2020 12:00am and written by Lawrence Agcaoili.

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