Lawrence Agcaoili (The Philippine Star) – May 25, 2021 – 12:00 am

MANILA, Philippines – The financial performance of hardest hit sectors and highly vulnerable banks needs to be watched more closely, as the NPL ratio of Philippine banks could rise further to exceed 6% this year in the middle of the COVID-19 pandemic, according to Bangko Sentral ng Pilipinas (BSP).

“The current challenges in the financial performance of the hardest hit sectors and very vulnerable banks warrant closer coordination and monitoring to ensure financial stability and continued resilience of the banking system,” said BSP Governor Benjamin Diokno , during the virtual convention organized by the Bankers Institute of the Philippines Inc. (BAIPHIL).

The BSP believes that the impact of the pandemic on the general condition and performance of the banking system remains manageable despite the expected increase in the sector’s NPL ratio.

“The BSP estimates that the banking sector’s NPL ratio will remain manageable and will stand at just over 6% by the end of December 2021,” Diokno said.

The latest central bank data showed that banks’ gross NPL ratio rose for the third month in a row to a new 11-year high of 4.21% in March, from 2.25% in March of the last year, as degraded loans continued to climb amid the resurgence of COVID. -19 infections.

Banks have accumulated bad debt or past due loan accounts with principal or interest unpaid for 30 days or more past the due date, as well as bad debts due to the impact of the global health crisis .

“Regarding the quality of assets, the indicators weakened but remained manageable,” said Diokno.

The BSP said that the implementation of Republic Law 11523 or the Law on Strategic Transfer of Financial Institutions, which enables banks to effectively dispose of their non-performing assets and non-performing loans through FIST companies, would free up to $ 900 billion in loans and reduce lending to the sector. NPL ratio between 0.63 and 0.71 percentage point.

Philippine bank profits fell nearly 33% to 155 billion pesos last year as the industry allocated a higher allowance for potential loan losses due to the pandemic’s impact on bank capacity. borrowers to repay their loans.

Diokno said the central bank had conducted stress testing exercises and ad hoc simulations to assess the resilience of the banking system amid the COVID-19 crisis.

“Overall, the results confirm that the banking system is reasonably well capitalized and could continue to lend to support the economy,” he said.

The risk-based capital adequacy ratio of the universal and commercial banking sector at the end of 2020 on an individual and consolidated basis was 16.6% and 17.1% respectively and well above the thresholds minimum set by the BSP and the Bank for International Settlements (BIS).

Likewise, the liquidity coverage ratio and the stable net funding ratio of large banks have remained above the minimum threshold of 100%, indicating the sector’s ability to finance needs during short- and long-term liquidity shocks.

For small banks such as autonomous savings banks, rural banks and cooperative banks, the minimum liquidity ratios exceeded the minimum of 20%.

“The Philippine banking system is healthy and stable, as evidenced by sustained asset growth, a strong capital position, adequate liquidity buffers, large loan loss reserves and profitable operations,” said Diokno.