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Banks’ loan loss provisions to remain high next year
Lawrence Agcaoili (The Philippine Star) – October 1, 2020 – 12:00 am
MANILA, Philippines – The provision for bad loans by most banks in Asia-Pacific (APAC) is expected to remain high until next year, with the Philippines seeing the largest increase as the economic recession amid the COVID-19 pandemic continues to pressure borrowers to repay. capacity, according to Fitch Ratings.
In a report titled “APAC’s bank provisioning to remain high in 2021,” the debt watcher said that the Philippines experienced the highest increase in bank credit costs in June, and that the cost of credit in the region rose to an average of 1.26 percent of gross loans. from 0.84 percent in the same period last year.
Credit costs in the Philippines increased to 2.4 percent in June from just about 0.4 percent at the end of 2019 compared to Indonesia’s two percent, Thailand’s 1.9 percent, Vietnam’s 1.4 percent, and 0.9 percent in Vietnam. percent from Malaysia, 0.8 percent from Singapore, and 0.2 percent from Taiwan.
“The Philippines saw rapid loan growth in the decade leading up to the pandemic, which will now challenge loan quality over the period, especially in the most vulnerable consumer segments, as well as in the small and medium-sized segments. companies (SMEs), ”Fitch said.
The latest data from Bangko Sentral ng Pilipinas (BSP) showed that the rise in bank loans slowed for the third month in a row to a single digit level of 9.6 percent in June.
from 11.3 percent in May, when the country imposed one of the longest and strictest lockdowns in the world to slow the spread of the virus.
The total provisioning of the local banking sector stood at $ 2.1 billion from January to June.
“Most emerging markets in Asia Pacific reported significant increases in bank loan costs at the end of June from the level at the end of 2019, with the Philippines seeing the highest jump. This partly reflects the severe economic impact that the pandemic has had on the country and that it struck at a late stage in the credit expansion cycle, ”Fitch said.
Provisioning is expected to remain high in the second half and next year, as the lingering consequences of the economic downturn could affect borrowers’ ability to pay in many markets as authorities reduce relief measures.
Preliminary data from the Bangko Sentral ng Pilipinas showed that provisions made by the banking sector for credit losses on loans and other financial assets amounted to P103.77 billion in the first half, more than five times the P19.75 billion allocated in the same previous period. year in anticipation of further defaults due to economic consequences.
As a result, industry profits fell 29 percent to P86.05 billion from January to June compared to P110.97 billion last year.
“Regulators may look to cushion the impact on profitability, but the sector’s net profits in 2020 are likely to fall year over year,” Fitch said.
The gross non-performing loan ratio (NPL) of Philippine banks rebounded for the seventh consecutive month to reach the highest level in nearly six years at 2.67 percent in July from 2.53 percent in June.
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