Local banks’ bad loans ratio improved to 3.54 percent in November 2024 from the previous month’s 3.60 percent, based on the latest data from the Bangko Sentral ng Pilipinas (BSP).
The gross non-performing loan (NPL) ratio is also lower than the same period in 2023 of 3.41 percent.
The NPL ratio is the percentage of NPLs to total loans, gross of allowance for credit losses but inclusive of interbank loans.
Meanwhile, NPLs are loan accounts whose principal or interest is unpaid for 30 days or more after they have become past due. These are also investments, receivables, or any financial asset considered impaired under existing accounting standards. As loans, NPLs are classified as doubtful or loss, in litigation, or there is evidence that full repayment of principal and interest is unlikely without foreclosure of collateral, if any.
During the period, the total loan portfolio increased by 10.37 percent to P14.719 trillion compared to P13.336 trillion same time in 2023. Of this amount, P520.530 billion are NPLs, up 14.58 percent from P454.280 billion in 2023.
BSP data showed that banks’ past due ratio or the delinquency rate, stood at 4.32 percent in November, lower than 4.40 percent in October but higher at 4.22 percent same time in 2023.
Past due loans totaled P635.617 billion in November, 12.82 percent higher than P563.384 billion in 2023. Loan accounts are considered past due if unpaid on due dates but banks may provide a cure period within 30 days to allow borrowers to catch up.
Loan loss reserves or banks’ NPL coverage ratio was reported at 93.20 percent in November, up from October’s 92.98 percent but lower than the previous year’s 101.47 percent.
Loans and other credit accommodations with unpaid principal and interest are provided with allowance for credit losses under BSP rules. This will be based on the number of days of missed payments, which is anywhere from 31 to 90 days, up to 181 days and over.
To cover for these potential losses, banks have set aside for loan loss provisioning an amount of P485.131 billion during the period, up 5.24 percent from P460.952 billion in 2023.
As for the banking sector’s gross restructured loans which are relief measures given to problematic borrowers, this amounted to P293.701 billion, down by 3.95 percent from P305.810 billion in the previous year.
The BSP defines restructured loans as loans and other credit accommodations that a bank – upon agreement with the borrower – has modified the contractual terms and conditions and revised the schedule of payments to lessen the financial difficulty of the borrower.
The ratio of restructured loans to total gross loan portfolio was at two percent flat in November, lower than 2.01 percent in October and from same time last year of 2.29 percent.
Despite rising soured loans, banks’ loan exposures continue to be adequately covered by loan loss reserves.
From 2015 until 2019 or the years before the Covid crisis, the NPL ratio ranged between 1.7 percent and 2.5 percent. When the pandemic hit in March 2020, the NPL ratio increased and ranged from 2.2 percent to a high of 4.51 percent between 2020 and 2022.
The highest NPL ratio, based on BSP data, was recorded in March 2008 at 4.99 percent. During the pandemic, the record high was 4.51 percent in August 2021.
NPLs have been growing by the double-digits since November 2023.