, Philippines

Philippine banks' credit weakness to persist throughout 2021

Non-performing assets ratio is expected to rise to 5.5%-6% by the end of the year.

Philippine banks’ credit weaknesses will likely persist through 2021 despite the government’s recent enactment to resolve bad debt through SPVs, reports Fitch Ratings.

Also Read: Philippine banks' bad loans to rise in Q1 2021 as support fades: S&P

The system's non-performing loan (NPL) ratio rose to 3.7% by end-2020 from 2.1% a year earlier, although it would have been higher if not for regulatory forbearance accorded by the central bank last year. The expiry of the repayment grace periods should lead to higher credit impairment in the first half of 2021, according to Fitch.

“We expect the system's total non-performing-asset ratio, which includes real and other properties acquired, to rise to 5.5%-6% by end-2021,” the report stated.

This is despite the signing into law of the country’s Financial Institution Strategic Transfer Act in February 2021, which will allow banks to divest bad loans from their balance sheets and amortise any losses from these sales for up to five years.

The law could help to temper deterioration in banks' NPL ratios and smoothen the impact on profitability, whilst also positioning banks to accelerate lending when economic conditions normalise.

The rate of NPL disposal, however, is likely to remain influenced by the pace of recovery in the economic environment, Fitch said.

Future economic conditions remains uncertain, with recovery continuously hamstrung by persistent coronavirus infections and prolonged curbs on economic activity, which in turn are weighing on consumer and business sentiments.

Join Asian Banking & Finance community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

Event News

Event News

BDO Capital Named as PH’s Corporate and Investment Bank of the Year for 5 Consecutive Years Co-Written / Partner
BDO Capital & Investment Corporation (BDO Capital) has been recognized as the country’s Corporate and Investment Bank of the year for the 5th straight year at the Asian Banking & Finance Awards. BDO Capital’s remarkable achievement is a testament to its consistent excellence in delivering best-in-class investment banking services across various product lines in the Philippine capital markets.