BAD DEBTS held by big banks continued to edge higher for the 10th straight month in November, as borrowers have difficulty in repaying loans amid the economic slowdown.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the gross nonperforming loans (NPL) ratio hit 3.81% as of end-November, picking up from the 3.72% in October as well as the 2.19% logged a year earlier.

Based on BSP projections, the industry-wide bad loan ratio could reach 4.6% by end-2020. It peaked at 17.6% in 2002 in the aftermath of the Asian financial crisis.

Soured loans reached P404.687 billion as of end-November, up 2.43% from the P394.432 billion in October and surging 73.6% from the P233.064 billion recorded a year ago.

NPLs cover debts left unpaid at least 30 days beyond the due date, which are considered as risky assets as these have high risk of default.

The increase in bad loans outpaced the buildup in lenders’ credit portfolio, which rose 0.14% to P10.625 billion from P10.61 billion in October but slipped by 0.09% from the P10.635 billion in November 2019.

Meanwhile, past due loans surged 63.3% to P507.687 billion from P310.883 a year ago. This brought the ratio to 4.78% from 2.92%.

Restructured loans reached P139.614 billion, soaring 241% from the P40.857 billion a year ago. This pushed the ratio to 1.31% of the total loans, from 0.38% a year ago.

As asset quality continued to deteriorate, banks beefed up their loan loss reserves by 65.4% to P352.733 billion from P213.276 billion last year.

Industry-wide NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, settled at 87.16%, lower than the 88.03% the prior month as well as the 91.51% in November 2019.

“The trend in NPL ratio would be a function of the further pick up/recovery in the economy, in terms of improvement in sales, income, and livelihood,” said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

Mr. Ricafort noted the further reopening of the economy would allow more businesses to operate at higher capacity and hire more workers, which would in turn, temper the rise in banks’ NPLs.

Banks tightened their credit standards to guard against bad loans amid the crisis. Outstanding loans disbursed by big banks grew by 1.9% year on year in October, the slowest since the same print was logged in September 2006.

Based on the Banking Sector Outlook Survey released last week, lenders remain wary of the impact of the crisis on the loan portfolio.

Majority of respondent banks said they expect NPL ratio to go beyond 3% this year until 2022. Meanwhile, nearly half of banks estimate restructured loans will make up 3-5% of the total portfolio.

Urgent enactment of Financial Institutions Strategic Transfer (FIST) bill and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill will help banks reduce NPLs by freeing up nonperforming assets, Mr. Ricafort said.

“These reform measures would help reduce NPLs and provide a solid foundation for stronger economic recovery prospects in the coming months from COVID-19,” he said in a text message.

The FIST measure, under reconciled House Bill No. 6816 and the Senate Bill No. 1849, has already been approved by the Bicameral Conference Committee. Meanwhile, the CREATE bill will be scrutinized by the bicameral panel when session resumes on Jan. 18. — Luz Wendy T. Noble