Banks’ profits, NPLs face hit from COVID-19 outbreak

BANKS’ profitability is likely to plunge due to the adverse impact of the coronavirus disease 2019 (COVID-19), which could also cause an increase in nonperforming loans (NPL), according to Global Data.

In a webinar on Thursday, Andrew Haslip, head of content for Asia Pacific at Global Data, said local lenders’ collective profit before tax could plummet by about 76% to about P68 billion from the P287 billion seen in 2019.

“Revenue declines as business volumes fall and lower business efficiency will result in immediate cost ratio deterioration,” Mr. Haslip said in his presentation.

Mr. Haslip also noted how banks have given leeway to clients amid the impact of COVID-19.

“Commercial banks are offering payment extensions…in the Philippines it’s been a relatively small..in Australia for instance we have up to six months of deferments in paying loans,” he said.

He said Philippine banks gave a grace period of around one to two months for loans with deadlines that fall within the period of the enhanced community quarantine in Luzon.

With many businesses temporarily shut, Mr. Haslip said there could be an increase in bad loans.

“Nonperforming loans will increase particularly across SMEs (small and medium enterprises) such as retail, travel, tourism, and entertainment even with policy support,” he said.

He said NPLs will only start to hit banks’ profits after the pandemic passes and will likely continue to increase until 2022.

Meanwhile, Mr. Haslip said aggregate savings could go up after the outbreak.

“Unlike developed markets, the bear markets affect Filipino retail savings little due to the small amounts at risk in the stock market directly or via funds,” he said.

Credit raters Moody’s Investors Service and Fitch Ratings have both downgraded their outlook on the Philippine banking sector to “negative” from “stable”, saying the Luzon lockdown could impair banks’ assets and profitability. — L.W.T. Noble