BSP: Banking industry 'still sound and resilient' despite increase in bad loans

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Metro Manila (CNN Philippines, September 9) — Banks in the country are still capable of withstanding the spike in non-performing loans (NPL) due to the COVID-19 pandemic, assured the Bangko Sentral ng Pilipinas (BSP).

“To be frank about it I think the banking industry really is, despite the increase in the NPL, still sound and resilient,” BSP Governor Benjamin Diokno told lawmakers on Thursday.

READ: Bad loans to go up amid COVID-19 surge, but PH banks' buffers 'sufficient' — Moody's

The central bank chief also said that no bank has so far availed of the Financial Institutions Strategic Transfer (FIST) Law, a measure which allows them to sell soured loans to asset management firms.

“I used to say the FIST Law is some kind of protection…in the eventuality that there will be an increase in non-performing loans which are unmanageable," Diokno said.

"But I don't see that happening at least from our point of view at the moment,” he added.

Soured loans in the banking system reached ₱482.99 billion as of June, yielding an NPL ratio of 4.48%.

“The financial crisis is still in its early days," Finance Secretary Carlos Dominguez III said. "We hope it will not be so bad that there will be a lot of bad accounts that will require the availment of the FIST Law.”

Diokno also noted the banks’ move not to use the measure for now as they were given “some leeway” until year-end, adding institutions are still evaluating where they stand at the moment.

“Probably starting next year, they will avail of the FIST Law,” he said.

The BSP has maintained an accommodative policy stance as the pandemic continues to ravage markets across the world.

It has already injected over ₱2 trillion in liquidity into the financial system and has kept interest rates to an all-time low of 2% since November last year.