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Long road to recovery

A report by debt watcher S&P Global Ratings sees Philippine banks on a long road to recovery as the sector’s non-performing loans may rise further to six percent this year from 3.6 percent in 2020. It does not expect the industry to reach pre-pandemic financial performance until 2023.

The report titled “Philippine banks: Buffers won’t hold if COVID comes back” said the country’s banking industry asset quality would deteriorate further in the coming quarters as banks recognize the full brunt of the pandemic on borrowers.

NPLs or bad debts refer to past due loan accounts where the principal or interest is unpaid for 30 days or more after due date. Such loans of the banking industry surged by 74.8 percent to P391.66 billion by end-2020 from P224.1  billion in end-2019. This was slightly lower than the record P404.69 billion in end-November last year.

“We expect NPLs to spike in the first quarter of 2021 as loan moratoriums and fiscal support are phased out. Moratoriums and restructuring helped borrowers with liquidity shortfalls and prevented defaults. Moreover, banks have actively restructured loans to help small businesses and consumers,” S&P primary credit analyst Nikita Anand said.

S&P said many small businesses have had to close shop as revenues plunged, while household incomes have been disrupted due to job losses and salary cuts as the country imposed the longest lockdown in the world.

“Most new NPLs since COVID-19 have come from the consumer segment, reflecting the loss of household incomes from the sharp economic contraction,” Anand noted.

The long road to recovery is not only for the banking industry but for the entire country in general but getting on it is better than being stuck in a rut. Industry giants have the resources to weather the storm but small businesses and consumers have less leeway. The government that is desperately trying to restart the economy despite a new surge in cases and delays in its vaccination program will not only have to extend more assistance to affected sectors to provide the push we need to get back on the road, but also have to provide the roadmap that the country has to follow in order to avoid getting lost or stuck in another rut.*

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