According to a report from Philippine Star on March 9, 2023, the non-performing loan (NPL) ratio of Philippine banks has increased for the first time in ten months. Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed that the industry's NPL ratio reached 3.28 percent in January, after improving for 10 consecutive months to a two-year low of 3.17 percent in December 2022. The share of bad debts to total loans disbursed by banks has been easing after hitting 4.24 percent in February 2022 amid the further reopening of the economy with the lifting of COVID quarantine and lockdown protocols.
The NPL ratio of banks peaked at 4.51 percent in July and August 2021 as the economy struggled due to the impact of the pandemic. The increase in NPLs was faster than the increase in the amount of loans disbursed by banks, which increased by 10.9 percent to P12.35 trillion from P11.14 trillion as the economy continues to recover from the pandemic.
Furthermore, the report revealed that bank lending contracted month-on-month by 2.2 percent to P12.35 billion in January from P12.62 billion in December. Meanwhile, Philippine banks reported a 6.8-percent rise in loan loss reserves to P430.48 billion in January from P402.89 billion in the same month last year.
The BSP earlier projected that the NPL ratio of Philippine banks would peak at 8.2 percent last year. However, Fitch Ratings expects the NPL ratio of Philippine banks to remain steady at around 3.5 percent this year as the adequate financial buffers of large corporate borrowers and a supportive economy largely offset the risks.
Inflation is also impacting NPLs across the globe. As inflation accelerates in many countries, including the Philippines, borrowers face higher costs of living, making it more challenging for them to service their debt. Higher interest rates are also driving up borrowing costs, leading to higher default rates. Therefore, policymakers must implement measures to control inflation while balancing the impact on borrowers and the economy.