The Philippine banking sector has remained healthy at the start of the current year, according to the Bangko Sentral ng Pilipinas (BSP).
This, as bank lending of universal and commercial banks (U/KBs) maintained its growth rate in December last year.
Also, the proportion of non-performing loans (NPLs) of Philippine banks to their total loans settled at 3.23 percent as of end-December last year. NPLs are known as “bad loans” in the banking industry.
Recent BSP data showed that the outstanding loans of U/KBs, excluding those placed in the central bank’s reverse repurchase facility, grew by 7 percent, the same rate of increase in November 2023.
This amounts to P11.7 trillion in outstanding loans issued by U/KBs, or a substantial increase compared to the P10.9 trillion in December 2022.
Outstanding loans to residents went up by 7.3 percent in December from 7.4 percent in the previous month, while outstanding loans to non-residents decreased by 2.8 percent in December from a decline of 5.0 percent in November.
Loans for production activities went up by 5.5 percent from 5.7 percent in November.
The BSP said growth was driven largely by the expansion in lending to key industries, such as real estate activities, wholesale and retail trade, repair of motor vehicles and motorcycles, and electricity, gas, steam, and air-conditioning supply.
Consumer loans to residents also increased by 23.5 percent in December due to the increase in credit card loans, motor vehicle loans, and salary-based general-purpose consumption loans.
Lesser bad loans
The BSP also reported that the proportion of NPLs of Philippine banks to their total loans settled at 3.23 percent as of end-December last year.
Recent data released by the BSP showed that the NPL ratio during the month was lower than the 3.41 percent recorded in November 2023.
It, however, increased from 3.16 percent in December 2022.
BSP data showed that as of December 31 last year, gross NPLs amounted to P446.9 billion, down from P454.2 billion in November but higher than P398.7 billion in December 2022.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the NPL ratio in December was still the "lowest since December 2022."
He attributed this to the improved business and economic conditions – easing inflation, improved data on employment, and strong economic growth after the pandemic, among others.
"All (these) improved the ability to pay by various borrowers, such as consumers, households, businesses, and other institutions, thereby reducing NPLs," he said.
The country’s banking system remaining healthy can also be attributed to banks maintaining their their credit standards in the fourth quarter of 2023.
The BSP said that results of the Senior Bank Loan Officers' Survey (SLOS) showed that most of the respondent banks kept their credit standards generally unchanged for lending to businesses and consumers based on the modal approach.
The diffusion index (DI) method, on the other hand, showed varied results reflecting a net tightening of credit standards for firms and a net easing of loan standards for households.
The SLOS consists of questions on loan officers’ perceptions relating to the overall credit standards of their respective banks, as well as to factors affecting the supply of and demand for loans to both enterprises and households.
In the modal approach, the results of the survey are analyzed by looking at the option with the highest share of responses. The three options include tightening, easing, or unchanged credit standards for loans to enterprises and for loans to households.
In the DI approach, a positive DI for credit standards indicates that the proportion of respondent banks that have tightened their credit standards exceeds those that eased, whereas a negative DI for credit standards indicates that more respondent banks have eased their credit standards compared to those that tightened.
An unchanged credit standard in the DI approach indicates that the proportion of the respondent banks that have tightened their credit standards is equal to those that eased their credit standards.
