BSP says Philippine banks can withstand increase in bad loans caused by pandemic

MANILA - The Bangko Sentral ng Pilipinas said Thursday the country’s banks are strong enough to withstand a possible increase in the number of non-performing loans as businesses reel from the effects of the COVID-19 pandemic.

BSP Governor Benjamin Diokno said that banks’ non-performing loans (NPL) account for just 2.1 percent of their total loan portfolio. These are loans where the debtors have not paid their dues for 90 days.

Diokno said they have done stress tests on banks and saw that even if banks’ NPL ratio reaches 5 percent “it will still be manageable.”

“Our banking system remains adequately capitalized and stable and has adequate buffers to withstand the impact of the COVID-19 situation,” the BSP chief said.

Diokno, however, also said that banking assets need to be monitored as the COVID-19 outbreak “will likely affect most borrowers.”

Across Asia, banks have warned that they will have to set aside additional provisions for loan losses in the first quarter " as the COVID-19 pandemic disrupts businesses.

• Asian banks brace for bad loans spike as virus batters region's economies
• BPI raises provision for bad loans due to COVID-19, Q1 net income falls

Diokno, meanwhile, said the BSP continues to encourage banks to lend to medium, small and micro-enterprises or MSMEs, which he said accounts for 63 percent of all employment and 99 percent of all firms in the country.

The BSP is supporting MSMEs by cutting interest rates, reducing banks’ reserve requirements, adopting a policy where any new lending to MSMEs is considered compliance with the reserve requirement, and reducing the risk weight for loans to small businesses.