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Bad debts outpace total bank loans’ rise

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SOURED DEBTS held by Philippine banks rose in 2018 to outpace the growth in total loans at a time of higher interest rates and rising commodity prices.

Non-performing loans (NPLs) held by banks hit P178.532 billion last year, 16.7% more than the P152.985 billion in 2017, according to data the Bangko Sentral ng Pilipinas (BSP) released on Tuesday.

NPLs are loans left unpaid for at least 30 days beyond due date. These are considered risky assets given the slim chance borrowers would settle such liabilities.

The growth in soured debts outstripped the 13.6% increase to P10.076 trillion in total loans handed out by banks.

As a result, industry NPLs took a bigger slice of total loans at 1.77% in 2018, compared to the preceding year’s 1.73%.

Problem debts held by universal and commercial banks grew 16.4% to P113.518 billion from P97.531 billion as of end-2017, faster than the total loan portfolio of these big lenders that expanded by 14.6% to P9.018 trillion.




This pushed big banks’ NPL ratio to 1.26% of total loans from 1.24% in 2017, capping declines observed since 2013.

Across the Philippine banking system, past due loans — which refer to all types of loans left unsettled beyond payment date — soared 44.2% to P253.582 billion, data showed.

Restructured debts fell 14.9% to P39.713 billion.

Still, banks added just a little to their reserves to cover prospective loan losses. The lenders set aside P187.342 billion, just 1.7% more than the previous year’s allowance for possible defaults.

This eroded the banks’ coverage ratio to just 104.93%, still enough to cover the entire NPL stash but significantly less than the 120.44% provision the year prior.

Philippine banks made a cumulative P178.835 billion in 2018, up 6.4% from the P168.075-billion profit the previous year.

BSP Deputy Governor Chuchi G. Fonacier said that the higher NPL may be attributed to a “stricter definition” of past-due and non-performing loans as provided under a recent circular.

The higher NPLs also came after the BSP raised benchmark borrowing rates by a total of 175 basis points in 2018 in five successive rate hikes meant to rein in inflation expectations as consumer prices surged by as high as 6.7% in September and October. The key rate rose to 4.75% from three percent in early 2018, which in turn pushed market yields higher.

The central bank monitors NPL ratios of banks and other firms in order to keep track of asset quality and maintain the soundness of the financial system.

In a March 6 webcast, S&P Global Ratings said the higher NPLs do not ring alarm bells just yet, noting that the ratio “continues to remain very low.”

At the same time, the global debt watcher cited the rapid rise of interest rates as well as currency volatility as key risks to bank profiles.

“We expect the uptick in NPLs to continue in 2019 as well,” Nikita Anand, S&P’s associate for Financial Institutions Ratings, had said then. — Melissa Luz T. Lopez