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Credit to MSMEs, consumers may cause NPLs to rise amid crisis

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BANKS’ LENDING to small businesses and consumers are seen causing an uptick in soured loans amid the coronavirus crisis, S&P Global Ratings said.

“We expect the consumer and micro, small and midsize enterprises (MSME) portfolios to contribute to higher NPLs in the coming quarters. Support measures from the government and the central bank should reduce the risk of defaults,” S&P analyst Nikita Anand said in a note sent to reporters on Friday.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said Thursday that the NPL ratio of banks inched up to 2.3% as of April from 2.2% as of March and 2% as of December 2019. Mr. Diokno noted lenders are currently assessing their portfolios after lockdown measures in the country were eased.

BSP Managing Director for Policy and Specialized Supervision Lyn I. Javier said they do not expect bad loans to rise to significant levels.

Latest data from the BSP showed total loans of the banking system increased by 7.8% to P11 trillion as of end-April when restrictions were imposed to prevent the virus spread.

Ms. Anand said heightened credit risks from the MSME and consumer loan sector may be felt more by smaller banks.

“Rural and thrift banks could see higher capital impact because they have higher exposure to consumers and SMEs. However, at 1% and 6% respectively, their share in the banking sector’s assets is small and limits contagion impact,” she said.

The government is providing support for embattled firms through wage subsidies. The Accelerated Recovery and Investments Stimulus for the Economy (ARISE) bill, which was left pending before the Congress adjourned, allocated P10 billion assistance to MSMEs as well as P25 billion worth of loans for the sector.

Meanwhile, the central bank has rolled out regulatory relief measures, such as allowing banks to count lending to small businesses as part of their reserve compliance and lowering the credit risk weight given to MSMEs.

S&P said banks’ exposure to big conglomerates will buoy them during this crisis.

“We believe the resilience of large corporates in the Philippines will be key to containing credit losses in this downturn,” Ms. Anand said.

“We expect large conglomerates, which form the bulk of the banking sector’s loan book, to be able to tide over the challenging operating conditions because of their strong business profiles, diversified revenue streams, and solid liquidity buffers,” she added.

Lenders have set aside higher loss provisions as they factored the impact of the virus outbreak to the economy.

The banking industry has an overall capital adequacy ratio of 15.4% and 16.4% on stand-alone and consolidated bases, well above the 10% minimum requirement of the BSP. — Luz Wendy T. Noble





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