Philippine Banks See NPL Ratio Hit 9-Month High

MANILA, Philippines — The non-performing loan (NPL) ratio of banks climbed to its highest level in nine months in May, reaching 3.44 percent, reflecting the lagged impact of previously high interest rates on borrowers’ repayment capacity and a normalization in asset quality. Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the banking industry’s gross NPL ratio rose from 3.37 percent in April. The latest reading was the highest since August 2025, when it stood at 3.5 percent, and was also slightly higher than the 3.38 percent posted in May 2025. NPLs refer to loans whose principal or interest payments have remained unpaid for at least 90 days after their due date. These are considered high-risk assets because they indicate a borrower’s reduced ability or willingness to repay debt. In peso terms, gross bad loans increased by 14 percent to P601.41 billion in May from P527.45 billion in the same month last year. This increase occurred alongside continued growth in lending, with banks’ gross total loan portfolio expanding by 11.9 percent to P17.48 trillion from P15.62 trillion a year earlier, suggesting that credit demand from households and businesses remained resilient despite tighter financial conditions. “The uptick in the NPL ratio likely reflects a normalization in asset quality alongside the lagged impact of previously high interest rates on some borrowers’ repayment capacity,” said UnionBank chief economist Ruben Carlo Asuncion. He added, “The banking system remains resilient, with strong capital and liquidity buffers providing sufficient capacity to absorb higher bad loans.” Moving forward, Asuncion expects continued economic growth and lower interest rates to help stabilize asset quality, although global uncertainties and pockets of borrower stress may keep NPLs slightly elevated in the near term. Other asset quality indicators also pointed to some pressure on borrowers. Past due loans, or obligations that have missed payments but have yet to be classified as non-performing, rose by 15.6 percent to P761.87 billion in May from P659 billion a year earlier, translating to a past due ratio of 4.36 percent. Meanwhile, restructured loans, which refer to accounts whose repayment terms have been modified to help borrowers avoid default, increased by 11 percent to P348.02 billion from P313.39 billion in the same month last year, with the restructured loan ratio standing at 1.99 percent. To cushion against potential losses, banks continued to build up reserves as allowance for credit losses climbed by 7.2 percent to P534.76 billion in May from P498.83 billion a year earlier. Despite the increase in bad loans, the banking system remained adequately provisioned, as the NPL coverage ratio stood at 88.92 percent at end-May.