Banks’ bad loans ratio eases to 3-month low

MANILA, Philippines — The non-performing loan (NPL) ratio of Philippine banks eased to a three-month low of 3.30 percent in March, from 3.38 percent in February, as the growth in total loan portfolios outpaced the increase in bad debts.

This marked the lowest NPL ratio for the country’s banking sector since it hit 3.27 percent in December last year, reflecting improved asset quality amid steady economic activity.

Data released by the Bangko Sentral ng Pilipinas (BSP) showed that the soured loans of Philippine banks rose by 11.2 percent to P516.12 billion in March from P464.67 billion in the same month last year.

On the other hand, the industry’s loan book grew at a faster rate of 14.2 percent to P15.63 trillion in March from P13.69 trillion a year ago amid sustained credit demand from both households and businesses.

Reinielle Matt Erece, an economist from Oikonomia Advisory & Research Inc., said the double-digit credit growth helped dilute the impact of the increase in NPLs, leading to the lower ratio.

“Getting the NPL ratio is simply dividing the NPL amount to total loan growth. Faster lending growth may reduce the ratio,” Erece said.

However, while lending growth in 2025 remains stronger than in 2024, it has begun to slow compared to the pace seen in January.

“This is where monetary policy easing could play a role in supporting credit growth and stimulating broader economic activity,” Erece added.

The banking sector’s NPL ratio has stayed below the four percent mark since April 2022 as lenders maintained prudent credit standards. The ratio peaked at a 13-year high of 4.51 percent in July and August 2022.

Statistics also showed that the past due loans, referring to all types of loans left unsettled beyond payment date, increased by 9.8 percent to P646.37 billion in March from P588.45 billion a year ago, translating to a past due ratio of 4.14 percent.

Restructured loans went up by 5.8 percent to P311.48 billion in March from P294.54 billion in the same month last year, resulting in a restructured loan ratio of 1.99 percent. These restructured accounts typically reflect borrowers who have renegotiated loan terms to avoid default.

Amid the slight rise in problem loans, banks beefed up the allowance for credit losses by 4.9 percent to P490.56 billion in March from P467.76 billion a year ago for a higher loan loss. This translated to an NPL coverage ratio of 95.05 percent as of end-March.

NPLs refer to credit obligations that have not been repaid for at least 90 days past their due date. These loans are considered high-risk assets, signaling a borrower’s weakened capacity or willingness to repay.

The latest figures suggest that the Philippine banking system continues to manage credit risks effectively amid economic headwinds, supported by sustained lending growth and proactive risk management practices.