PHILIPPINE banks are being warned of potentially higher non-performing loans (NPLs) in the coming months, especially after loan payment moratoriums and other pandemic-related relief measures taper off.
In a recent sector analysis, Moody’s Investors Service said their recent review shows that the Philippines is the only country in the Association of Southeast Asian Nations (Asean) that saw a significant rise in NPL levels in the midst of the pandemic.
Non-performing loans (NPL) are more popularly known as “bad” or “soured” loans as they are unpaid loans way beyond their due date.
“Gross NPL ratios have held steady in 2020 at most Asean and India banks, helped by loan moratoria. Despite moratoria and the clarification of rules for asset classification by regulators, Philippine banks are an exception, with the asset-weighted average NPL ratio rising to 3.4 percent as of 30 September 2020 from 2 percent a year earlier,” Moody’s said.
This is despite the Bangko Sentral ng Pilipinas’s (BSP) recent efforts to mandate banks to help borrowers in the time of the pandemic.
Moody’s noted that the Philippines’s loan moratorium—which is still in effect—has the broadest scope in Asean.
In October 2020, all banks in the country were required to implement a one-time, 60-day moratorium for all performing loans with principal, interest or both coming due on or before 31 December 2020.
In Malaysia and Thailand, where loan payment moratoriums are also still in effect, the relief measure has been reduced. In Malaysia, loan moratoriums are now limited to selected groups of retail borrowers and microenterprises. In Thailand, banks offer loan moratorium only on a case-by-case basis.
Despite this, gross loans in the country have been declining and NPLs still rose the fastest in the region.
Moody’s said the NPLs arose mostly from the retail and small and medium enterprise (SME) segments, which were hit hard by the pandemic.
“Given borrowers in the Philippines are still benefiting from loan moratoria, we expect asset quality will further deteriorate in 2021 when the payment forbearance ends. It also remains to be seen how the Philippines will transition borrowers back to full loan repayments,” the credit watcher said.
Earlier, BSP officials said they project the country’s bad loans to rise to about 4.6 percent of their total loan portfolio by the end of the year.
Image credits: Nonie Reyes