Banks’ bad loan ratio steady at 3.35% in August

MANILA, Philippines — The share of bad loans held by Philippine banks remained broadly stable in August and improved from a year ago as overall lending continued to grow faster than soured accounts.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed that the banking industry’s non-performing loan (NPL) ratio stood at 3.35 percent in August, virtually unchanged from 3.35 percent in July but lower than 3.5 percent in August 2025.

NPLs refer to loans whose principal or interest payments have remained unpaid for at least 90 days after their due date. The ratio shows how much of banks’ total loan portfolio has turned sour, making it a key gauge of borrowers’ repayment capacity and the banking system’s asset quality.

UnionBank chief economist Ruben Carlo Asuncion said the steady NPL ratio in August suggests that asset quality remains broadly stable despite a challenging operating environment.

“While gross bad loans increased year on year, the banking industry’s loan portfolio expanded at a faster pace, indicating that credit growth continues to outpace the buildup in problem loans.

In peso terms, gross bad loans rose by 8.4 percent to P596.3 billion in August from P550.1 billion in the same month last year.

However, the banking industry’s gross loan portfolio expanded at a faster pace of 13.2 percent to P17.78 trillion from P15.71 trillion a year earlier.

The stronger increase in overall lending helped bring the NPL ratio below its year-ago level despite the rise in the absolute amount of problem loans.

Compared with July, bad loans increased by 1.8 percent from P585.74 billion, while the total loan portfolio grew by 1.6 percent from P17.50 trillion. This left the NPL ratio almost unchanged on a rounded basis.

Other indicators showed that some borrowers continued to face repayment pressure.

Past due loans, or obligations with missed payments that have not necessarily been classified as non-performing, climbed by 11.1 percent to P769.89 billion from P693.08 billion a year ago.

Still, the past due loan ratio eased to 4.33 percent from 4.41 percent in August 2025, meaning these accounts made up a smaller share of the overall loan book.

Meanwhile, restructured loans rose by 3.5 percent to P340.58 billion in August from P328.92 billion a year earlier. These are loans whose repayment terms have been modified, typically to make the debt more manageable for borrowers experiencing financial difficulty.

The restructured loan ratio declined to 1.92 percent from 2.09 percent a year ago.

Banks also continued to set aside funds to cushion against possible credit losses. Allowance for credit losses increased by seven percent to P555.6 billion from P519.29 billion in August last year.

The NPL coverage ratio, which measures the amount of reserves available relative to bad loans, stood at 93.17 percent. This was lower than 94.40 percent a year earlier but broadly unchanged from July.

Asuncion said that NPLs are likely to remain manageable in the near term, supported by banks’ strong capital and provisioning buffers.

“However, the outlook warrants caution as persistent inflation, the possibility of higher-for-longer interest rates and signs of moderating economic activity could weigh on borrowers’ repayment capacity, leading to some deterioration in asset quality,” he said.