MANILA, Philippines – Weak credit in the Philippine banking system is expected to persist, with the Non-Performing Loan (NPL) ratio increasing another 4.5 to 5 percent this year despite the recent enactment of a law to resolve bad debts by through special purpose vehicles (SPVs), according to Fitch Ratings.
In a report, S&P said it expects the industry’s credit portfolio to deteriorate further as borrowers find it harder to honor their debts.
“This suggests a potentially more pronounced deterioration in asset quality in the first half of 2021 than in 2020. We expect the NPL ratio to drop to around 4.5% to 5% by the end of 2021,” Fitch said.
The latest data from Bangko Sentral ng Pilipinas (BSP) showed that the NPL ratio of Philippine banks eased slightly to 3.61% at the end of December 2020, from 3.78% in November last year, but higher the 2.04% recorded in December 2019.
“NPL’s ratio would have been higher without the regulatory forbearance granted by BSP last year,” Fitch said.
According to the Debt Monitor, the extent of the deterioration would largely depend on the momentum of the economic recovery, with exposures in the consumer sectors as well as small and medium-sized enterprises (SMEs) – where banks focused on growth – probably being the most tested.
He said the non-consumption ratio rose to 2.2% at the end of September from 1.5% at the end of 2019 due to micro, small and medium enterprises (MSMEs) and middle market enterprises, especially those in tourism. , retail and trade. properties that have been hit hard by the pandemic.
Fitch said banks typically have high credit exposures to large corporations that have also been hit by the pandemic, with profits falling 60 to 80 percent last year.
The 30-day debt relief under Republic Act 11469 or the Bayanihan to Heal as One Act and the 60-day moratorium under RA 11494 or the Bayanihan to Recover as One Act both expired in the year last.
“The expiration of the repayment grace periods is expected to result in higher credit depreciation in the first half of 2021 and we expect the total ratio of non-performing assets in the system, which includes real estate and other assets, to reach 5.5-6% by the end. -2021, ”Fitch said.
The credit rating agency said consumer loans, which account for 19% of total loans, suffered the worst write-downs as the effects of the crisis continued to trickle down to the economy, NPL’s overall ratio consumption reaching a 10-year high of 8.5%. at the end of September last year, more than double the 2019 level of 4.1%.
The ratio, he said, was sparked by a severe shock in the labor market, where the unemployment rate hit 17.6% in April last year during the tightest lockdown before it collapsed. moderate to 8.7% in October of last year.
However, Fitch said the improvement in the national unemployment rate had not translated into better quality consumer credit assets.
“Employment is expected to improve as economic activity picks up, but we expect the labor market slowdown to persist for at least several quarters. There will likely be lagged effects as the drop in income seeps into the quality of consumer loans, suggesting that the NPL ratio is likely to remain high in 2021, even if banks write off more. aggressive bad loans, ”Fitch said.