PH banks' bad loan ratio hits nearly 12-year high in April

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Metro Manila (CNN Philippines, June 7) — Bad loans in the country's banking system continued to rise this April, data from the Bangko Sentral ng Pilipinas revealed.

Non-performing loans hit ₱463.6 billion during the month, leading to an NPL ratio of 4.35%. This surpassed the 4.21% figure logged in March — wherein soured debts hit ₱448.4 billion — and 2.31% in April last year which tallied ₱2.51 billion.

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The recent NPL ratio is the highest since May 2009, with bad loans of ₱123.7 billion leading to a 4.37% figure.

Economists have attributed the growth in non-performing loans mainly to the impact of the COVID-19 pandemic and the resulting uncertainty, which has effectively hampered the ability of borrowers to settle their dues punctually.

“Businesses related to discretionary spending were affected and their existing loans have become unpayable,” UnionBank chief economist Ruben Carlo Asuncion told CNN Philippines in an e-mail, adding that individuals employed in these firms have likewise been impacted through their incomes as well.

ING Bank senior economist Nicholas Antonio Mapa also noted how “depressed” economic activity and job losses likewise brought incomes down, another factor impairing the ability to pay loans on time.

The Philippine economy remains in recession this year, having nosedived yet again by 4.2% in the first quarter of 2021. Meanwhile, the country logged a 7.1% unemployment rate in March — easing from 8.8% in April but still up from pre-pandemic levels.

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Asuncion also flagged how the uncertainty of more quarantine restrictions in the future is “putting pressure” on several micro, small and medium enterprises (MSMEs) which are having difficulty reeling from challenges posed by the health crisis.

To address the increase in bad loans due to COVID-19, President Rodrigo Duterte inked the Financial Institutions Strategic Transfer (FIST) law which allows banks to sell soured debts to asset management companies.

While FIST will separate bad loans from financial institutions’ banking sheets, Mapa noted the measure will “do little to address the true problem of income loss and impairment.”

An expedient COVID-19 vaccine rollout, which will help bring the national economy back to recovery, shall help address the rise in non-performing loans, according to both analysts.

Asuncion emphasized the importance of effectively addressing the health crisis by controlling the spread of the virus in order to improve consumer and business confidence. Mapa, on the other hand, cited stimulus efforts to help usher in a “true pickup in economic activity.”