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July 13, 2024

Philippine loan delinquency up: Rising rates, weak peso squeeze borrowers

The Bangko Sentral ng Pilipinas (BSP) reported a slight uptick in the non-performing loan (NPL) ratio for Philippine banks in May.

The NPL ratio climbed to 3.57%, edging higher from 3.45% in April. This marks the first increase since April and surpasses the 3.46% recorded in May 2023.

Analysts attributed the rise in NPLs to the BSP’s recent monetary policy tightening and a depreciating Philippine peso.

“Higher interest rates and a weaker peso have combined to squeeze borrowers, particularly those with US dollar-denominated loans,” said Michael Ricafort, chief economist at Rizal Commercial Banking Corporation.

Ricafort further highlighted the potential impact of a global slowdown triggered by rising interest rates in the wake of the Russia-Ukraine conflict.

“The slowdown in global investment, trade, and economic activity could indirectly affect Philippine businesses integrated into global supply chains, potentially contributing to further NPL deterioration,” he explained.

“Potential interest rate cuts by the Federal Reserve and the BSP in the coming months could ease financing costs and stimulate loan demand, potentially leading to a gradual improvement in the NPL ratio,” Ricafort noted.

However, the extent and timing of these policy shifts will be crucial in determining the trajectory of Philippine NPLs.