S&P: Phl banks’ NPL to spike in Q1

Most new NPL since Covid-19 have come from the consumer segment

As Philippine banks are poised to traverse a long road to recovery, international credit watcher S&P Global Ratings said that the industry’s non-performing loans (NPL) could witness a spike in the first three months of the year.

“We expect NPL to spike in the first quarter of 2021 as loan moratoriums and fiscal support are phased out. The industry’s NPL ratio will likely increase to six percent in 2021 from 3.6 percent as of end-2020,” S&P said.

According to the credit watchdog, some 1.6 percent of the industry’s gross loans have become non-performing during 2020, a little below their two to three percent range estimate.

In particular, loan portfolios for consumer and micro, small and medium enterprises will continue to see a high new NPL formation with 19 and 5 percent of the total respectively.

“Most new NPL since Covid-19 have come from the consumer segment, reflecting the loss of household incomes from the sharp economic contraction,” it explained.

We expect NPL to spike in the first quarter of 2021 as loan moratoriums and fiscal support are phased out.

While a spike to six percent was expected in the first quarter, S&P said that its peak could manifest in the second half of the year as banks’ asset quality was expected to continue to deteriorate in the coming quarters as the full extent of the pandemic’s impact reveals itself.

Carlo Asuncion, chief economist at the Union Bank of the Philippines, agreed that a real second wave may be detrimental to the economy, recognizing S&P’s view that banks’ assets won’t hold should such happen.

“If that happens, then fiscal efforts should be more aggressive... Although we have had higher NPL in the past, allowing it to happen due to a possible second wave, which at this point, I think, we can already control with the vaccination rollout efforts,” Asuncion said in a text message.

Permanent losses Phl and Thailand

On a separate report, S&P said that the Philippines along with Thailand will see the largest permanent economic losses in the region at about 12 percent and 10 percent, respectively.

“The longer an economy is stuck with unemployed resources, the larger the damage to balance sheets and workers. More businesses would close and more workers would lose jobs, skills and motivation,” it said.