Figures released by the Bangko Sentral ng Pilipinas (BSP) on Thursday showed that the amount of bad debt in the Philippine banking system has risen to over P479 billion as of the end of May this year.

Lenders’ gross non-performing loans (NPL) increased by 83 percent to P479.48 billion at the end of May, up from P262 billion a year earlier.

Past-due loans with an outstanding principle or interest balance of 30 days or more after the due date are referred to as nonperforming loans (NPLs). This includes the outstanding balance of loans payable in monthly installments when three or more installments are in arrears.

The entire loan portfolio of banks declined by 1.20 percent to P10.66 trillion at the end of May from P10.79 trillion a year ago, the data also revealed.

This translates to a gross NPL ratio of 4.49 percent, up from 4.35 percent at the end of April and 2.43 percent a year ago.

This figure represents the percentage of bad loans among all loans, including interbank loans.  The current NPL ratio is at its highest level in nearly 13 years, or since September 2008, when it was at 4.52 percent.

According to BSP Governor Benjamin Diokno, the execution of Republic Act 11523, or the “Financial Institutions Strategic Transfer (FIST) Act,” is expected to reduce the banking system’s average NPL ratio by 0.6 to 5.8 percentage points between 2021 and 2025.

The new regulation will allow lenders to quickly dispose of troublesome assets through asset management companies, allowing the financial industry to stay stable despite the impact of the coronavirus disease 2019 pandemic, he has said.

FIST, which was passed into law on February 16, provides banks and other financial institutions with a legal framework as well as tax incentives to transfer nonperforming assets to special-purpose corporations known as FISTCs. It applies to assets that are nonperforming as of December 31, 2022, or before that date.

The Bangko Sentral also issued the law’s implementing rules and regulations (via Circular 1117, which Diokno signed on May 27.