The Bangko Sentral ng Pilipinas expects the proportion of non-performing loans (NPLs) of Philippine banks to total loans to peak at 8.2 percent next year before reverting to pre-pandemic levels of around two percent.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno, however, assured that the NPLs of banks would remain in single-digit until 2022 despite the rising bad loans due to the pandemic.

“We estimate that the NPL ratio is likely to peak at 8.2 percent in 2022 which is twice the current NPL ratio but will decline in the years thereafter. This level is significantly lower than that experienced by the banking system during the Asian financial crisis,” Diokno said in his weekly online press briefing.

Diokno said the BSP’s single-digit projection for NPL ratio was due to banks’ prudent credit risk management standards and the operationalization of the Financial Institutions Strategic Transfer (FIST) Act which will help banks dispose of its non-performing assets and will also reduce NPL ratio.

BSP data showed that as of end-July, NPL ratio increased to 4.5 percent year-on-year, and the NPL coverage ratio stood at 82.4 percent.

During the 199 the financial crisis, NPL ratio surged to as much 18 percent.

NPLs are unpaid and impaired loan accounts for more than 30 days.

Diokno said some banks have already expressed their interest to unload their NPAs under the FIST Act.

“We do not expect NPLs to reach levels that will result in banks reaching their minimum capital ratio,” said Diokno.

He added that banks are well-capitalized and based on results of the BSP internal stress test exercises, it showed that most banks will be able to absorb losses under scenarios of assumed credit impairment.

“Banks are proactive and (BSP prudent regulations) ensure that their credit risk are well managed,” said Diokno, referring to enhanced remedial management problem of credits and the recognition of loan loss provisions and the managing of capital losses.

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Diokno: Banks’ NPL ratio seen peaking in 2022
Source: Filipino Daily Inquirer