Bad loans hit 2-mo low
Bad loans held by Philippine banks as a ratio of total credit fell to their lowest level in two months in November, as borrowers and banks might have turned cautious amid expectations of fewer interest rate cuts.
Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the gross amount of nonperforming loans (NPL)—or credit that is 90 days late on a payment and at risk of default—had accounted for 3.54 percent of lenders’ total lending portfolio in November.
That figure, called the gross NPL ratio, was lower than the 3.6-percent ratio recorded in October, which was a two-year high. The latest reading was also the lowest since September 2024.
In peso terms, this means that P520.53 billion of the total banking industry loan book of P14.72 trillion had turned sour in November. That amount of NPLs was 14.59 percent bigger compared with a year ago.
Despite the lower NPL ratio in November, banks still increased their buffers against unpaid loans. Figures showed lenders had set aside P485.13 billion as allowance for potential credit losses.
That brought the NPL coverage ratio, a measure of sufficiency of such provisioning, to 93.2 percent, up from 92.98 percent in the preceding month.
Leonardo Lanzona, economist at Ateneo de Manila University, said the decline in soured loans in November was “fundamentally a market correction” from the “exceedingly high” NPL ratio in the preceding month.
He added that both banks and borrowers likely turned “more prudent” amid expectations of a slower monetary policy easing.
“The BSP has signaled its easing policy on the interest rate may be tempered as inflationary pressures have gone up. Also, housing prices have declined, resulting in lower investment in real estate,” Lanzona said.
Not out of the woods
But Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., said the latest data still indicated that many borrowers had a hard time repaying their loans.
“The slight easing of the NPL ratio in November could be attributed to improved loan quality and better debt management by banks. However, the year-on-year increase suggests that economic challenges and higher interest rates might have impacted borrowers’ ability to repay loans,” Ravelas said.
The BSP last year delivered a total of 75-basis-point cut to the key interest rate that banks use as a guide when pricing loans.
And Governor Eli Remolona Jr. had hinted at additional easing moves for this year as financial conditions are still “somewhat tight,” even floating the possibility of another rate cut at the Feb. 20 meeting of the Monetary Board.
But some analysts believe that the BSP might have to match the shallower rate cuts by the US Federal Reserve this year to avoid too much peso volatility that can stoke inflation.
