Systemwide non-performing loans rose sharply by 22.5% in January.
After a sharp spike in non-performing loans (NPL) in January following the sector's massive $412m (PHP21b) exposure to troubled Korean shipbuilder HHIC-PH, banks in the Philippines are regaining their footing with NPL levels stabilising and witnessing flat growth at 14.5% in May, according to Maybank Kim Eng.
After HHIC-PH filed for a voluntary rehabilitation, creditors agreed to work together and participated in a debt-to-equity swap. About 36% of total debt valued at $149m were converted into a 20% stake in HHIC-KS. In a breakdown, BDO and BPI converted 42% and 38% of their respective debt into 3.40% and 3.10% stake. LandBank coverted 46.5% of its debt for 5.00% stake and RCB converted 45.3% of its debt into 8.50% equity.
"We believe this gives participating banks another option to recoup their debt once HHIC-KS’ share price improves. PH banks can start liquidating in 2020, after a holding period until end-2019," analyst Katherine Tan said in a report. "We also expect NPL to go down as debt exposure gets reclassified to equity investments and placed under nonperforming assets."
The bad loan situation is also stable on the consumer side with NPL ratio holding steady at 4% in Q1. NPL growth also slowed to 11.3% from 12.8% in the previous quarter following slower growth in bad loans from the auto segment which offset a mild increase in mortgage NPLs.
"Our 2019 forecast already assumed a rise in the banks’ NPLs in view of the HHIC-PH exposure and rising rates. Provision expenses are also expected to increase by 19% YoY resulting in a 2bps rise in credit cost," added Tan.
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