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Friday, March 29, 2024

Diokno assures stability of banks amid WB’s rising bad debt warning

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Bangko Sentral ng Pilipinas Governor Benjamin Diokno on Wednesday downplayed the observation of the World Bank that the rising bad debt of accumulated by banks may pose a risk to the country’s post-pandemic recovery.

Diokno said in an online briefing the BSP has “prepared our banks and helped them during the pandemic,” while insisting that they were not at risk.

“The debt-to-GDP ratio is manageable at the moment… We don’t see any problem,” Diokno said.

The World Bank said in its World Development Report 2022 it was time to prioritize actions that would support a healthy financial system that could provide the credit growth needed to support recovery.

The multilateral lender mentioned the Philippines as one of the countries where bad debt was becoming a problem.

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Diokno said in a previous briefing the country’s banking system remained strong amid the continuing global crisis and that non-performing loan ratio of banks would likely remain at a single-digit level going forward.

Citing BSP estimates, he said banks’ NPL ratios might settle between 5 and 6 percent at the end of 2021.

The Department of Finance also said the country’s debt-to-GDP ratio would stabilize as pandemic-related spending was winding down.

The DOF noted that the stock of national government debt stood at nearly P11.729 trillion in the fourth quarter of 2021, down from P11.917 trillion in the third quarter.

It said that as a percentage of GDP, the debt metric improved from 63.1 percent in the third quarter to 60.5 percent in the fourth quarter which the DOF said “is still sustainable for an emerging economy.”

“The recent build-up of debt was largely in response to pandemic-related expenses. However, the government continues to judiciously manage debt, maintaining a prudent balance between domestic and external sources of financing, with more emphasis on the former to minimize effects of external risks,” the department said.

It said fiscal consolidation and economic recovery would be very critical in preserving fiscal stability. “The debt-GDP ratio is expected to stabilize as pandemic-related spending is wound down,” it said.

Diokno said he was not worried about the possibility of major credit rating agencies downgrading the country’s investment grade ratings due to rising debts, saying debt metrics remained manageable.

The Philippines enjoys investment grade ratings from Fitch Ratings, Moody’s Investors Service, S&P Global Ratings and Japan Credit Rating Agency.

The economy rebounded with a growth of 5.6 percent last year from the 9.6-percent contraction in 2020.

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