Lucio Tan group’s Philippine National Bank (PNB) is bracing for a “peak” in bad loans ratio which could come in the first quarter of 2021 when the Bayanihan 2’s 60-day moratorium for all loans has expired.
PNB president and CEO Jose Arnulfo ”Wick” Veloso said he will be unable to give an estimate of where the bank’s non-performing loan (NPL) ratio will be until the last two weeks of December when the Bayanihan 2 ends, but he expects a very challenging first quarter of next year, NPL-wise. NPLs are loans whose principals or interests remain unpaid after 30 days or more after the due date.
“We will really have a good handle of where our NPLs are (by end-December),” he said during the bank’s press briefing on its third quarter earnings’ results. “If you take a look at PNB’s NPL, the ratio increased after we merged with the savings bank last March. Majority of bad loans came from our savings bank … we had some technical past due because the savings bank was unable to properly collect from its customers.” PNB, which operates more than 700 branches, has fully integrated the 63 branches of the thrift bank subsidiary, PNB Savings Bank, to get to a wider customer base.
Veloso said the real picture of how the pandemic and Bayanihan law affected its NPL load will be known at the end of 2020, when the effects of the postponement of interest payments together with the principal will come out, as well as the number of borrowers that are unable to pay or will apply for loan restructuring.
One thing is for certain, he said, the NPL will increase from its current 3.9 percent ratio, without the NPL of the savings bank it has absorbed. “I cannot provide you with a number as we continue to monitor how the situation will be,” he added. While on a stand alone basis, PNB’s current NPL ratio is 3.9 percent which is within the industry’s estimated three percent to four percent NPL, with the savings bank, it is at 32.7 percent.
Veloso said PNB continues to have a strong cash management system which was one of the things he made sure of as part of its anti-pandemic response, as well as cost cutting and loan monitoring. “We make sure that the liquidity provision of the bank has always been kept strong during the pandemic,” he said.
PNB also has a strong remedial team, said Veloso, which is “very much focused” in looking at its portfolio and sectors “where the most likely exposed specific business are going to have (problems).”
“We’re making sure that we take a look of all of the exposures that we have, make sure (that) for those customers that fall outside of our risk appetite should be priced accordingly,” he added.
As of end-September, PNB has set aside P9 billion of loan loss provisioning which is six times higher than same period in 2019 with the bank proactively working with its customers and other stakeholders to “mitigate the impact of the pandemic to its loan portfolio and other credit exposures,” said Veloso.
Because of its higher loan impairment provisions, PNB’s nine-month net income dropped to P3.9 billion end-September from P2.5 billion same period last year.
“For the remaining months of the year, the bank will focus on tactical strategies aimed at strengthening its liquidity and capital positions and improving operational efficiencies to enable the bank to actively participate in reviving the economy and assist its customers in rebuilding their businesses,” said Veloso.
He said PNB’s third quarter performance still show core income improvements “despite the bank’s prudent approach in asset deployment amidst the difficult operating environment.”
“Our strategies, backed by a strong franchise and loyal customer base helped the bank adapt to the pandemic conditions,” said Veloso.
Industry-wide, banks’ NPL ratio has increased to 3.4 percent in September from 2.84 percent in August, and the latest bad loans ratio is higher than the five-year average of 1.9 percent, or from 2015 to 2019, based on Bangko Sentral ng Pilipinas (BSP) data.
A BSP survey of banks showed that NPL ratio could climb to 4.6 percent by end-2020. A banking sector estimate, in the meantime, has put the range of end-of-year NPL ratio to three percent to four percent, and five to six percent in 2021.