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Banks, awash in bad loans, don’t make loans
MANILA, Philippines – Banks continued to avoid making loans as the loans on their books begin to deteriorate with the removal of regulatory relief extended to clients hit by the pandemic.
Outstanding loans from large banks, net of their loans between them, increased 2.8% year-on-year as of September, maintaining a weakening trend that began last March. The latest data was also the worst performance since the 2.4% growth in June 2007.
Lending is slowing as banks, big or small, had to deal with an increase in bad credit. Non-performing loans (NPL), or those unpaid at least 30 days past due, soared 60.2% year-on-year to P364.67 billion last month. That led to delinquencies accounting for 3.4% of all loan books, the highest since May 2013.
Delinquencies increased as the 60-day grace periods on loan payments under the Bayanihan Recover as One Act began to decline. That said, banks have also strengthened their defenses against possible losses in arrears, increasing provisions for that purpose to 91.75% of bad loans, although down from 107.4% in August.
In a statement Tuesday night, Bangko Sentral ng Pilipinas (BSP) said that lenders are pulling out of doing their main lending business due to “lower risk tolerance”, in addition to a general weakness in business confidence and consumer because the economy remains stagnant. in recession.
The statement is an acknowledgment of the challenge ahead of BSP Governor Benjamin Diokno, who cut interest rates to record lows this year when he took the sticks from his former colleagues in the Duterte cabinet by refusing to embark on a massive fiscal push. to save the economy. from the ruins of the pandemic.
The latest data showed that BSP’s aggressive easing is not making a dent in bringing funds to consumers and businesses. While, according to central bank estimates, $ 1.7 trillion had been released into the economy due to low rates and the 200 basis point cut in bank reserves, most of the funds have only been earmarked for bond and equity markets; the latter rose to a 9-month high last Tuesday, and even back to BSP through its constantly overwhelmed bond and term deposit auctions.
“From here, we can only hope that the downward trends in lending in most sectors will fall, households will reach single digits soon and overall lending will approach zero with the pandemic economy,” Nicholas Antonio Mapa, Senior Economist at ING Bank in Manila. said in the customer note.
Patrick Ella, an economist at Sun Life Canada (Philippines) Inc., agreed. “Q3 (third quarter) looks bad and does not indicate if the credit trend will change from now on,” he said in another email.
Breaking down the figures, loans from universal and commercial banks to large productive activities grew by 2.4% year-on-year in September, compared to 4.1% the previous month. In this segment, credit to the manufacturing sector contracted 2.6%, while that of the wholesale and retail trade fell 3.4% higher annually.
On the other hand, loans to the information and communications sector, which is benefiting from a digital change, increased by 9.7% year-on-year, while bank credit to the booming real estate sector expanded by 7.3% year-on-year and public services 3%. Meanwhile, the response to the pandemic increased loans for health and social work activities by a staggering 44.5% year-on-year.
In other segments, loans to households increased 10.2% year-on-year and, while still in double digits, there was a dramatic slowdown from the 22.9% expansion last March, just as the crisis was unfolding. of health.
BSP Deputy Governor Chuchi Fonacier believes that loan growth has bottomed out and should pick up pace in the last 2 months of the year with holiday spending. Emilio Neri Jr., principal economist at Bank of the Philippine Islands, agreed that it is likely, but he also toned down his expectations due to the rise in bad loans.
“Sour loans will continue to increase. History shows that it is the year after or even 2 years later (recessions) that NPLs tend to peak. My feeling is that the banks’ provisioning at the beginning of the year was insufficient at the moment, ”Neri said on an online exchange.
The good news is that lawmakers stepped forward Tuesday to pass the Strategic Transfer of Financial Institutions Act, which aims to absorb bad loans from lenders so they can continue their loan business. The measure will still go through consolidation by House and Senate leaders before reaching President Rodrigo Duterte’s desk for enactment.
According to a survey of lenders by BSP, banks expect delinquencies to peak at 4.6% of total loans by the end of the year, but Fonacier said regulators interviewed lenders again last month for updates. , whose results are not currently available. “We are still waiting for some of the banks. We are also engaging them to better understand the assumptions used, ”he said.
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