Banks beef up provisions as sour loans increase

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    Online stockbrokerage firm Colfinancial.com said banks’ assets have started to deteriorate in the third quarter of the year amid potential soured loan provisions.

    This is particularly so with banks that have high exposure on small and medium-size enterprises, credit cards and auto loans, the stockbroker said.

    “Most banks continued to book substantial provisions in the third quarter as they build up their NPL (non-performing loan) cover in anticipation of higher NPLs in the succeeding periods,” it said.

    Colfinancial.com noted that in the third quarter alone, banks’ provisions increased by more than three times to P37 billion compared to the previous year, resulting in higher credit cost for the sector in the first nine months to 182 basis points (bps), of which 48 bps was booked in the third quarter.

    “This is significantly higher than the 59 bps booked in the full-year 2019. Compared to our forecast, all banks, with the exception of one, ended up with higher than expected provisioning for the first nine months of the year,” it said.

    According to Colfinancial.com, most of the banks’ gross NPL ratio for the third quarter increased sequentially following the expiration of the loan moratorium of Bayanihan 1 last May.

    The stock brokerage firm noted one bank’s NPL ratio declined sequentially.

    “We believe that this may have been caused by writing off some NPLs during the period as its NPL cover also declined sequentially,” it said. “Overall, the banks’ median NPL ratio deteriorated to 2.99 percent from 1.89 percent in the previous quarter. This caused the banks’ median NPL coverage ratio to decline to 102 percent from 126 percent during the same period. Nevertheless, we believe that this remains adequate as banks are not expected to write-off the full amount given historical recovery rates,” it added.

    Colfinancial.com meanwhile said lending operations sustained banks’ growth for the period, with all banks except for one registering positive growth in net interest income.

    Banks that are more dependent on high cost funding reported stronger growth as they greatly benefitted from the decline in funding costs, Colfinancial.com said.

    “As a whole, the sector’s net interest income expanded 11.0 percent year on year during the quarter, slower than 21 percent growth registered in the first half. This was mainly driven by higher net interest margin as total interest earning assets were only up by 2 percent,” it added.