PH banks see lower bad debts in 2024

MANILA  —Philippine banks expect a continued decline in their soured debts this year as better economic conditions help repair borrowers’ pandemic-battered balance sheets, which should help the industry achieve “sustained” growth in the coming months.

Results of the Bangko Sentral ng Pilipinas’ (BSP) “Banking Sector Outlook Survey 2023-2024” showed half of the country’s big banks are seeing nonperforming loans (NPL)—or debts that remain unpaid at least 30 days past the due date—to eat up “above 2 percent to 3 percent” of their loan portfolio.

That means bad debts are expected to drop further after falling to a two-year low of 3.17 percent in 2022.

Latest central bank data showed NPLs accounted for 3.41 percent of total loans as of November 2023, the lowest in two months.

A projected decline in soured debts would lessen the need for banks to beef up their buffers against potential losses from unpaid loans. This, in turn, would allow lenders to use more of their resources to ramp up their lending activities.

Survey results showed the so-called NPL coverage ratio—which represents capital that banks set aside to prevent past due loans from tarnishing their balance sheets—is forecast to drop to 75 percent by the end of the year, from 106.84 percent in 2022.

READ: BSP urges banks to clean books of bad debts

As of November last year, the NPL coverage ratio stood at 101.47 percent, figures showed.

Upbeat outlook

“So results of the survey showed that the surveyed banks maintained their upbeat outlook, with growth projections in assets, loans, deposits and debt income,” BSP Deputy Governor Chuchi Fonacier told reporters over the weekend.

“Respondent banks are also optimistic that they will post improved loan quality, and this will be accompanied by high loan loss provisioning in 2024,” she added.

Latest central bank data showed bank lending grew by 7 percent in November 2023, among the slowest pace seen in two years.

READ: Modest business appetite curbs PH bank lending growth

So far, consumer loans have stayed resilient after posting an impressive 23.6-percent growth in November despite the aggressive anti-inflation rate hikes by the BSP. But this strength was tempered by a sluggish 5.7-percent expansion in loans to businesses.

According to Fonacier, banks indicated their intention to maintain capital and liquidity buffers at levels higher than domestic and global standards to promote institutional stability.

READ: Bank lending to stay resilient despite high rates

At the same time, the top priority of respondent banks for 2024 remains to be digital transformation, followed by expansion of their target market.

The survey also reported that the most common risks to bank operations are credit, macroeconomic, operational, and cybersecurity threats, Fonacier said.