THE Philippine banking industry is seen registering P368 billion worth of bad loans due to the coronavirus disease 2019 (Covid-19) pandemic, according to a report by the Inter-Agency Task Force Technical Working Group.
The report, titled “We Recover as One,” noted that the estimated amount represents 4.9 percent of the banks’ collective loan balances as of end-March, which is more than double the current nonperforming loan (NPL) ratio of 2.1 percent.
It added that 15.3 percent of the total bad loans, or P56.4 billion, is expected to be written off.
The estimation of the impact assumed a 45-day lockdown period in Luzon, the report noted.
The reported amount was based on the data shared by nine out of the country’s top 10 banks, the report said. These major banks comprised approximately 76 percent of the banking system’s assets and loan portfolio as of end-February, which roughly represent the industry as well.
The figure provided is 66 percent of what the Bangko Sentral ng Pilipinas (BSP) estimated to be the full-year amount of NPLs for 2020.
The Central Bank had said earlier that bad loans could reach P556.6 billion this year due to the pandemic, which is equivalent to 5 percent in NPL ratio. Of this amount, 50 percent to 80 percent, or around P278.3 billion to P445.28 billion, would not be recovered.
BAP estimates
Meanwhile, the latest booked amount for NPLs has already surpassed the estimates of the Bankers Association of the Philippines (BAP).
BAP had earlier noted that bad loans could surge to approximately P240 billion to 300 billion in the coming months, with 50 percent to 80 percent of the amount expected to be written off.
The technical working group said the biggest default is anticipated to come from loans to private corporations. “The anticipated losses, understandably, are expected to increase the longer the economic inactivity or slowdown,” the report reads.
“As it stands and over a reasonable time period, the banking sector is well-positioned to be able to absorb this loss,” it added.
As of end-March, the local banking sector’s capital stood at P2.32 trillion, which is 8.3 percent higher than P2.14 trillion year-on-year.
Delays in payment deadline
One of the relief measures imposed under the Bayanihan to Heal as One Act is to extend the deadline for loan payments to ease the burden of cash-strapped borrowers.
While this can help the borrowers, the relief measure could trigger NPLs or defaults at worst.
“Given the losses during the ECQ [enhanced community quarantine], as well as subdued demand even post-ECQ, some businesses may not be able to fulfill their loan obligations. Rising unemployment may likewise lead to defaults in consumer loans,” the report said.
Still, RCBC Chief Economist Michael L. Ricafort is optimistic that banks can handle financially the delay in loan payments.
He said that banks have been conducting stress test exercises, as mandated by regulators, even during normal economic conditions, making them prepared for the current pandemic.
“This is on top of the risk management system in place, aligned with global best practices in the management of market risks, liquidity risks, credit risks, operations risks, etc.,” he explained.
“Banks will have to remain resilient and the Central Bank has to be credited in preparing the financial system and implementing the necessary buffers and protocols as a result of previous economic and financial crises,” UnionBank Chief Economist Ruben Carlo O. Asuncion added.
The report noted that the government should also consider extending the validity of BSP memorandum 2020-008, which allows banks to declare provisions for potential credit losses on a staggered basis for a maximum of five years.
Financial inclusion
Meanwhile, the report also addressed concern regarding financial inclusion amid the pandemic. Only 22.6 percent or 22.8 million Filipinos have a bank account, according to the BSP’s Financial Inclusion Survey in 2017.
With increasing demand for online banking and other financial transaction services, the report said the emergence of digital platforms and financial technology could expand access across the country.
BSP Governor Benjamin E. Diokno, in a recent webinar, said the Central Bank was eyeing to have 70 percent of the Filipino adult population be financially included as it strengthens digital efforts.
“Given the increased demand for online financial services, the relevant infrastructure and regulatory oversight need to be strengthened, including closer monitoring of cybersecurity plans,” the technical working group suggested.
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