**Philippine Banks See Highest NPL Ratio in Over Two Years**
By Luisa Maria Jacinta C. Jocson, Reporter
### **Introduction**
The asset quality of Philippine banks continues to decline as the industry’s gross nonperforming loan (NPL) ratio surged to its highest level in more than two years, according to the latest data from the Bangko Sentral ng Pilipinas (BSP). This increase highlights ongoing financial pressures faced by borrowers and the banking sector amid economic uncertainties.
### **Rising NPL Ratio and Its Significance**
The BSP’s preliminary data revealed that the NPL ratio increased to 3.6% in October, up from 3.47% in September and 3.44% in October 2022. This marks the highest level since May 2022 when the ratio stood at 3.75%. The last time the NPL ratio reached this level was in June 2022.
Nonperforming loans refer to loans that remain unpaid for at least 90 days after the due date. These loans are considered risk assets as they pose a significant threat to the financial health of lending institutions.
### **Breakdown of NPL Figures**
Data from the BSP showed that the total volume of soured loans increased by 1.3% month on month to **P524.31 billion** in October from **P517.45 billion** in September. On a year-on-year basis, the increase was more significant, with bad loans rising **16.7%** from **P449.45 billion** in October 2022.
Despite this increase in bad loans, the total loan portfolio of the Philippine banking system declined by 2.4% from **P14.9 trillion** at the end of September to **P14.55 trillion** in October. However, compared to the previous year, total loans grew by **11.3%** from **P13.07 trillion**.
### **Past Due Loans Also on the Rise**
Alongside the rise in NPLs, past due loans—loans that have not been paid on time but are not yet classified as nonperforming—also increased by **1.3%**, reaching **P640.88 billion** in October from **P632.87 billion** in September. This represents a **15%** increase from **P557.27 billion** in the same period last year.
As a result, the past due ratio rose to **4.4%** in October, compared to **4.25%** in September and **4.26%** in October 2022.
### **Restructured Loans Show a Mixed Trend**
Restructured loans—loans that have been modified to make repayment easier for borrowers—declined slightly by **0.6%** month on month to **P292.75 billion** in October from **P294.53 billion** in September. However, compared to last year, restructured loans fell by **5.3%** from **P309.16 billion**.
Despite the decline, restructured loans accounted for **2.01%** of the industry’s total loan portfolio, up from **1.98%** in September but lower than **2.36%** in October 2022.
### **Increase in Loan Loss Reserves**
With the rise in NPLs, banks have increased their loan loss reserves to mitigate potential risks. Loan loss reserves rose by **1%** month on month to **P487.52 billion** in October from **P482.84 billion** in September. On a yearly basis, reserves increased by **5.7%** from **P461.41 billion**.
This led to an increase in the loan loss reserve ratio, which climbed to **3.35%** in October from **3.24%** in September. However, compared to October 2022, when the ratio stood at **3.53%**, there has been a slight decline.
### **NPL Coverage Ratio Declines**
The NPL coverage ratio, which measures how well banks have set aside provisions to cover bad loans, fell to **92.28%** in October from **93.31%** in September. This is also a notable drop from **102.66%** in October 2022, indicating that banks are facing increased challenges in covering potential loan defaults.
### **Factors Contributing to the Rising NPL Ratio**
According to Rizal Commercial Banking Corp. Chief Economist **Michael L. Ricafort**, the rising NPL ratio can be attributed to multiple factors:
1. **Start of BSP’s Monetary Easing Cycle**
– The BSP initiated its policy easing cycle in August with a **25-basis-point (bp) rate cut**, followed by another **25-bp reduction** in October, bringing the key policy rate to **6%**.
– The lower interest rates may have impacted the ability of banks to manage loan risks effectively.
2. **Impact of Natural Disasters**
– The country was hit by **Severe Tropical Storm Kristine** and **Super Typhoon Leon** in October, which caused disruptions to businesses and economic activities.
– These events may have led to financial difficulties for borrowers, contributing to higher loan delinquencies.
3. **Geopolitical and Economic Uncertainties**
– Global economic instability, driven by tensions in the Middle East and other regions, has affected **investments, trade, and business activities**.
– This has resulted in financial strain on some borrowers, leading to an increase in bad loans.
### **Conclusion**
The rise in the NPL ratio to its highest level in over two years underscores the challenges facing the Philippine banking sector. While loan growth remains strong, the increasing volume of bad loans and past due accounts suggests that financial institutions must remain vigilant in managing credit risks.
With ext