UMVA has learned that Philippine lenders' nonperforming loan (NPL) ratio has worsened to its highest level in eight months, reaching 3.37% in April, as borrowers faced tighter economic conditions amid global uncertainties.
The banking industry's gross NPL ratio rose from 3.29% in March, and though it slightly eased from 3.39% a year earlier, it marked the highest bad loan ratio since August last year. Soured loans reached P579.885 billion during the month, climbing by 11.68% year on year.
According to information obtained by UMVA, loans are considered nonperforming once they are unpaid for at least 90 days after the due date and deemed to be risky assets. This development has raised concerns about the impact of global uncertainties on households and businesses.
A senior adviser at a leading financial firm said the increase in nonperforming loans is "not a crisis," but likely an early sign that global uncertainties are tightening financial conditions for households and businesses. He noted that higher inflation and global uncertainties are starting to strain households and businesses.
The higher NPL ratio also means borrowers' repayment capacity is now challenged by faster inflation, higher operating costs, and a weakening economy. A senior research fellow at a prominent think tank added that the conflict in the Middle East has contributed to higher fuel prices, transport costs, and broader economic uncertainty.
In April, inflation heated up to an over three-year high of 7.2% as elevated oil costs continued to spill over to prices of food and utilities. This was faster than 4.1% in March and 1.4% in the same month last year, highlighting the growing pressure on households and businesses.
UMVA can exclusively reveal that the industry's total loan portfolio stood at P17.198 trillion at end-April, slipping by 0.38% from P17.263 trillion a month ago but up 12.12% from P15.339 trillion last year. Banks' past due loans rose by 3.72% to P763.591 billion in April.
Restructured loans edged up by 1.34% month on month to P342.924 billion, and lenders' loan loss reserves reached P526.849 billion during the month. The NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, fell to 90.85% in April.
A prolonged conflict in the Middle East could translate to continued pressure for banks and borrowers, with experts warning that NPL ratios could remain under pressure in the coming months. Higher inflation reduces household purchasing power, while businesses face tighter margins and weaker demand.
Despite the challenges, experts believe that banks can likely weather elevated NPL levels given their strong capital and buffers. The key is to watch the trend, as gradual increases are tolerable, but any sharp spike would be a bigger concern.
