THE PHILIPPINE BANKING industry’s nonperforming loan (NPL) ratio eased for the fourth straight month in September, although soured loans inched up amid high borrowing costs.   

Based on preliminary data from the Bangko Sentral ng Pilipinas (BSP), the NPL ratio stood at 3.4%, easing from the 3.42% seen in both August 2023 and September 2022.

This is the lowest NPL ratio in six months or since 3.33% in March this year.

However, the amount of bad loans rose by 0.3% to P444.313 billion in September from P442.902 billion in August and by 7.2% from P414.606 billion in September last year.

Loans are considered nonperforming once they remain unpaid for at least 90 days after the due date. They are deemed as risk assets given borrowers are unlikely to settle such loans.

The slight easing in the NPL ratio reflected the continued recovery of business and industries that were hit hard by the pandemic, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

He noted the uptick in loan demand during the third quarter shows companies are preparing for the increased economic activities during the holiday season.

Outstanding loans issued by big banks expanded by 7.2% year on year to P11.06 trillion in August, separate central bank data showed. This was the slowest print in 20 months.

However, Mr. Ricafort noted borrowers may still have a hard time with loan repayment due to high interest rates and elevated inflation.

“The higher NPL amount may have to do with higher prices/inflation and higher interest rates since 2022 that raised debt servicing costs, thereby reducing the ability to pay by some borrowers, especially those with limited budgets or financial challenges,” he said.

The BSP maintained key interest rates for a fourth straight meeting in September, keeping its key policy rate at a near 16-year high of 6.25%.

Headline inflation accelerated to 6.1% in September from 5.3% in August. This marked the 18th straight month that inflation exceeded the central bank’s 2-4% target.

Based on BSP data, past due loans increased by 12.4% to P549.75 billion from P488.899 billion a year earlier. These borrowings were equivalent to 4.21% of the industry’s total loan portfolio, up from 4.04% a year earlier.

Meanwhile, restructured loans fell by 7.9% to P307.31 billion from P333.68 billion in September last year. This brought the ratio to 2.35% from 2.76% previously.

Banks continued to beef up loan loss reserves to P460.513 billion, rising by 8.3% from P425.117 billion. The loan loss reserve ratio inched up to 3.53% from 3.51% in September 2022.

Lenders’ NPL coverage ratio — which shows the allowance for potential losses due to bad loans — edged higher to 103.65% from 102.54% a year earlier.

“Banks’ NPL ratio would continue to ease in the coming months, amid faster economic growth and easing headline inflation trend,” Mr. Ricafort said.

He noted that markets have priced in a possible Fed rate cut by mid-2024 that could be matched by the Philippine central bank and “would lead to some downward correction in borrowing/funding costs and in debt servicing costs.” — Keisha B. Ta-asan