THE NONPERFORMING loan ratio (NPL) of the banking industry increased in January after five straight months of decline, reflecting the impact of tighter restrictions that month.
Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) on Tuesday showed the gross NPL ratio of the Philippine banking system went up to 4.14% in January from 3.97% in December. It was likewise higher than the 3.72% in the same month of 2021.
In January, NPLs rose by 2% to P461.66 billion from P452.453 billion a month earlier and by 16.7% from the P395.465 billion a year ago.
The pickup in soured loans could be attributed to the tighter restrictions imposed in the capital and other areas in January amid the Omicron-driven surge in coronavirus cases, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.
“We have seen it before that when infections rise and the government responds with more restrictions, mobility and economic activity are affected and causes uncertainty for the people,” Mr. Asuncion said in a Viber message.
The government placed Metro Manila and some provinces under Alert Level 3 in January as cases surged due to the more transmissible Omicron variant, causing slower economic activity.
While bad loans increased, the loan portfolio of Philippine banks shrank by 2.2% month on month to P11.142 trillion in January from P11.391 trillion but rose by 4.9% from P10.618 trillion in the prior year.
Past due loans increased by 6% to P539.425 billion in January from P508.959 billion a year ago. This brought the ratio to 4.84% from 4.79% a year ago.
Meanwhile, restructured loans amounted to P356.449 billion, climbing by 81.8% from the P196.055 billion last year. These borrowings made up 3.2% of the industry’s total loan portfolio from 1.85% previously.
Amid the rise in bad loans, banks ramped up their allowance for credit losses by 8.5% to P402.89 billion from P371.173 billion. This is equivalent to 3.62% of banks’ loans from 3.5% a year earlier.
The NPL coverage ratio of the banking industry was at 87.27% in January, declining from the 93.86% last year.
Mr. Asuncion is optimistic that bad loans will drop anew as economic activity improves following the relaxation of mobility restrictions. However, the Russia-Ukraine war could hit consumer and business confidence if it continues to escalate, he warned.
“This can change the baseline outlook and cause a trimming of recent growth expectations that again can affect peoples’ incomes and capacity to pay,” he said.
Credit growth in January stood at 8.5%, the quickest since the 9.6% print in June 2020. Production loans rose by 9.6%, while consumer borrowings expanded for the first time in 13 months by 0.1%.
The banking industry’s NPL ratio hit a 13-year high of 4.51% in July and August 2021, which is still below the 17.6% seen in the aftermath of the Asian Financial Crisis in 2002. — Luz Wendy T. Noble