BANKS CONTINUE to be armed by strong buffers as defense versus the impact of the coronavirus pandemic on their asset quality, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.
“The result of our stress tests suggest that banks can continue to lend and prosper through a broad range of adverse scenarios,” Mr. Diokno said in a speech at the General Membership Meeting of the Money Market Association of the Philippines on Wednesday.
The central bank chief said loan quality slightly weakened amid losses and cash flow interruptions experienced by borrowers due to the pandemic.
“We don’t see this trend to extend in the long run, however,” he said.
The banking industry’s non-performing loan ratio stood at 3.4% as of September, the highest in more than seven years or since the 3.42% logged in May 2013, as bad loans surged 60% to P364.672 billion from the P227.6 billion logged a year ago.
The BSP expects banks’ NPL ratio to hit 4.6% by end-2020. In 2002, the industry’s bad loan ratio reached 17.6% in the aftermath of the Asian Financial Crisis.
“We expect the banking industry to book additional provisions as they continue to reassess the quality of the loan portfolio,” Mr. Diokno said.
Allowance for credit losses surged 60% year on year to P334.57 billion at end-September from P209.069 billion as banks sought to guard against defaults.
This higher provisioning has resulted into lower net income for lenders. However, this is likely to be offset by lower operating expenses and the deferment of capital expenditures and non-essential expenses, Mr. Diokno said.
He said they observed that big banks refrained from major changes in their portfolios as they continue to gauge liquidity risks.
“Exposures are mostly concentrated in highly-liquid and investment grade instruments. As a natural consequence, profitability declines,” the central bank chief said.
Meanwhile, Mr. Diokno said they are hopeful banks will continue providing support to micro-, small-, and medium-sized enterprises following regulatory relief measures from the BSP meant to encourage lending to the sector during the pandemic.
The central bank has allowed banks to count their lending to MSMEs as alternate reserve compliance. It has likewise reduced the credit risk weight for loans disbursed to small businesses.
“The banking system’s new MSME loans used for compliance with the reserve requirements have averaged P127.5 billion as of the reserve week of Oct. 22 from P9.3 billion as of April 30,” Mr. Diokno said. — L.W.T. Noble