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By Luz Wendy T. Noble, Reporter
The asset quality of local banks is expected to deteriorate in the coming months as consumers and small businesses struggle through the economic slowdown, global debt watchers said.
“Asset quality in the Philippine banking sector is likely to deteriorate amid the economic slowdown, weighing onto bestability. Consumers and businesses will feel the pain of a weak economy, rising unemployment and declining remittances from abroad…. We expect consumer and SME (small and medium-sized enterprises) loan portfolios to contribute to higher NPLs (delinquent loans) in the coming quarters, ”S&P Global Ratings said in a report.
In a separate note, Fitch Ratings noted that the Philippines experienced rapid loan growth in the past decade “which will now test the quality of loans over the period, especially in the most vulnerable consumer and SME segments.”
Gross delinquency in the local banking industry rose 32.1% to Q290.1 billion in July, data from Bangko Sentral ng Pilipinas (BSP) showed, pushing the gross delinquency rate to a six-year high. 2.67% at the end of July.
The country’s unemployment rate was 10% in July, equivalent to 4.571 million unemployed Filipinos.
Remittances are also taking a beating as more Filipino workers are repatriated. Remittance inflows so far this year fell 2.4% to $ 16.802 billion in the to befirst seven months of 2019.
“Supportive measures from the government and the central bank should reduce the risk of default. Lending forbearance will provide a respite, especially for savings and rural banks that typically lend to lower-quality borrowers, ”said S&P.
The central bank has been encouraging lenders to support small businesses through regulatory relief measures, this includes allowing loans to MSMEs (micro, small, and medium-sized enterprises) as an alternative to reserve fulfillment and reducing risk weighting. credit for loans disbursed to the sector.
“We expect the large conglomerates, which account for the majority of banking sector loans, to overcome challenging operating conditions due to their strong business advantage.to bethem, variousto beed income streams, strong liquidity buffers and moderate leverage, ”said S&P.
However, S&P warned that a deeper recession could mean more damage to Philippine banks.
“A longer or deeper economic slowdown in the Philippines than our current forecasts could establishff a sharper deterioration in the asset quality of the banking sector due to potentially higher large corporate defaults, ”he said.
S&P expects the economy to contract 9.5% this year, much more pronounced than the government’s estimate of contraction of 4.5% to 6.6%.
HIGH CREDIT COSTS
Most banks in emerging markets in Asia Pacito bec (APAC) has seen a rise in credit costs at the end of June, with the Philippines seeing the steepest rise, according to Fitch.
“This partly reFloridaIt affects the severe economic impact that the pandemic has had on the country, ”Fitch said.
In July, banks’ provision for credit losses increased 59% to P321.85 billion from the P202.22 billion they have booked in the same month of 2019.
Fitch noted that Philippine banks opted to have general provisions rather than specific provisions for loans that are already underperforming.
“The increase in general supply is aFloridareaction from banks preparing for tough times ahead. ”Dan Martin, Regional Credit Officer for APAC at Fitch Ratings, it said in an emailed response to questions.
Martin said there is also the possibility that these expected credit losses will not materialize in the event of a strong recovery and that reversing the expected credit losses would even bolster the banks’ profitability.to bestability.
“Likewise, if banks have underestimated the future deterioration in asset quality, they will continue to face high credit costs in the coming quarters,” he said.
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