MORE THAN HALF of banks in the Philippines still expect nonperforming loans (NPLs) to continue to rise over the next two years due to the economic downturn, a Bangko Sentral ng Pilipinas (BSP) survey showed.

The BSP’s Banking Sector Outlook Survey for the first six months of 2021 showed 58.9% of the respondents expect their NPL ratio to go beyond 5% in the next two years. However, this is lower than the 63.5% of the respondents that anticipated this outcome in the survey for the second semester of 2020.

“The impact of the COVID-19 pandemic on the domestic economy resulted in banks’ subdued optimism on the country’s economic prospects,” the central bank said.

“Nonetheless, the overall outlook in the banking system remains stable as banks intend to maintain risk-based capital and liquidity buffers; enhance their risk management systems to safeguard financial system stability; and strengthen organizational conduct and risk culture in order to thrive amid the volatility and complexity of the operating environment,” it added.

The industry-wide NPL ratio stood at a 13-year high of 4.49% in May as bad loans surged by 83% to P479.481 billion from a year earlier, based on latest BSP data. The BSP expects the banking industry’s NPL ratio to be a little above 5% by end-2021.

“The banks’ projections are consistent with the BSP’s NPL estimates for the year 2021. The enactment of the Financial Institutions Strategic Transfer (FIST) Act as well as the issuance of its implementing rules and regulations in the first semester of 2021 will help limit buildup of NPLs in the financial system,” BSP Governor Benjamin E. Diokno said in a statement.

Amid projections of an elevated NPL ratio in the next two years, banks also appeared to adopt a more prudent stance in the management of credit risk.

The survey found that 54% of respondent banks expect to report NPL coverage ratio of more than 50% to 100%. This is higher than the 44.3% that said they intended to report higher NPL coverage ratio in the prior survey.

BSP data showed NPL coverage ratio — which indicates the allowance for potential losses due to soured loans — declined to 79.96% in May from 97.31% a year ago.

Meanwhile, 43.5% of lenders, mostly foreign banks, thrift banks, and rural commercial banks expect to see their restructured loan ratio to reach more than 5%, reflecting banks’ willingness to modify loan terms.

On the other hand, universal and commercial banks expect a more conservative restructured loan ratio of 2% and below.

Restructured loans made up 2.47% of banks’ lending portfolio as of May.

In the next two years, nearly three-fourths (72.7%) of respondent banks expect double-digit growth in their loan portfolios on the back of expected improvements in economic situation.

“The progress in the country’s vaccination rollout is expected to sustain loan growth due to consumer and business confidence and higher loan demand,” the BSP said.

Six in 10 surveyed banks also expect double-digit growth in bank assets.

Based on the study, 41.9% of banks surveyed said gross domestic product (GDP) will likely grow by around 5-6% in the next two years. One in five banks are more bullish, projecting GDP growth to reach 6-6.3%.

To recall, the government is eyeing a 6-7% growth in 2021 and 7-9% by 2022. — Luz Wendy T. Noble