Banks firm up defenses ahead of expected bad loan surge

Banks built up their defenses further ahead of an expectedly challenging year when a huge chunk of loans are bound to sour, potentially eating up on precious bank resources that could otherwise be lent out.

Coverage ratio for non-performing loans hit a 9-month high of 94.6% of outstanding bad loans in January, according to latest central bank data.

NPL coverage measures banks’ provisioning to cover potential losses when a loan or credit ends up getting unpaid by borrower at least 30 days past due.

For most of last year, these defenses got eroded after lockdowns and the pandemic jolted bad loans upwards as jobless consumers and shuttered businesses defaulted on their obligations.

Yet after peaking in November, NPL had shown little signs of a massive uptick, at least for now. In January, NPLs accounted for 3.7% of entire loan books, up from 3.6% in December but still slightly below the record-high of 3.8% in November.

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