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Philippine banks still worried about rise in unpaid loans
1:37 pm on 22 July 2021, Thursday
The rise in soured debts continued to be a big headache for banks, which still see a continued uptick in non-performing loans (NPL) they hold over the next two years.
Results of a new survey by the Bangko Sentral ng Pilipinas showed the majority of banking industry leaders polled expect NPL, or debts that were left unsettled 30 days past the due date, to account for over 5% of their entire loan portfolio over the next two years.
Specifically, universal and commercial banks see their NPL ratio settling between 3%-6.5% in the next two years.
To protect their balance sheet, most banks polled by the BSP said they intend to report an NPL coverage ratio of more than 50% to 100.
This means lenders are ready to beef up their defenses against losses arising from loan defaults, although this move could weigh on profitability.
“The banks’ projections are consistent with the BSP’s NPL estimates for the year 2021,” BSP Governor Benjamin Diokno said.
The latest central bank data showed NPL ratio of the entire local banking industry rose to a 13-year high of 4.49% in May, as borrowers whose incomes were smashed by the pandemic struggle to repay their bank loans.
But the BSP survey showed banks also anticipate restructured loans to account for 5% of their total loan portfolio, higher than earlier projections of between 3-5%. This reflects the continued efforts of banks to grant financial relief to their borrowers through modifications in their loan payment terms.
“The enactment of the Financial Institutions Strategic Transfer Act, as well as the issuance of its implementing rules and regulations in the first semester of 2021, will help limit build-up of NPLs in the financial system,” Diokno said.