By Komfie Manalo
Domestic banks recorded higher non-performing loans (NPLs) in May, settling at 3.57%, higher than the 3.45% recorded the previous month, the Bangko Sentral ng Pilipinas (BSP) said. It was also up from the 3.46% seen in May 2023.
An NPL ratio measures the bank's credit risk level and the quality of outstanding loans. A high ratio means the bank bears a greater risk of loss if it fails to recover the owed amounts, while a low ratio indicates that the outstanding loans pose a low risk to the bank.
However, economists said there is no cause for concern as the Philippine banking sector remains stable and resilient.
The gross non-performing loans amounted to P495.67 billion, higher than the P480.64 billion in April this year and the P436.11 billion recorded in May last year.
Rizal Commercial Banking Corporation chief economist Michael Ricafort said the increase in NPL was due to the relatively higher interest rates that increased borrowing costs.
He said the weaker peso exchange rate recently also increased the debt servicing costs of those with U.S. dollar loans.
"Risk of recession in some developed countries after the sharp increase in borrowing costs as triggered by the Russia-Ukraine conflict since February 22, 2024, also slowed down global investments, trade, and other business activities, thereby partly weighing on the sales and profitability of some global industries, with some indirect adverse effects on local businesses especially those part of the global supply chains, thereby partly contributing to the recent pick up in the NPL ratio," he said.
He said that in the coming months, possible Fed and local rate cuts would help ease financing costs and spur greater demand for loans and other economic activities, which would eventually help improve the NPL ratio.
Comments