The gross non-performing loan (NPL) ratio of Philippine banks stood steady at 3.38 percent in February from the preceding month, but dropped from 3.44 percent a year earlier, the Bangko Sentral ng Pilipinas (BSP) said.
Data released by the BSP late Tuesday showed the total amount of NPLs, or soured loans, was up 0.10 percent to P513.35 billion in February 2025 from P512.83 billion in January.
Soured loans are a key indicator of a lender’s asset quality. They pose a challenge for banks to set aside additional funds to cover potential losses, which could negatively impact profitability and liquidity.
Year-on-year, February 2025’s non-performing loans were 10.13 percent higher than the P466.11 billion recorded in February 2024.
“The steady NPL ratio at 3.38 is among the best in more than a year. Lower US and local interest rates since late last year would have eased the interest payment burden for some borrowers,” Michael Ricafort, Rizal Commercial Banking Corp.‘s chief economist, said in a message to Malaya Business Insight on Wednesday.
This development also reflects how banks are managing their credit risks better despite faster loan growth in recent months, he added.
The NPL ratio is a measure of bad loans divided by the total value of banks’ loan portfolio. Loans are classified as non-performing when payments of principal and interest are unpaid after 90 days from the due date, or when future payments are not expected to be received in full.
BSP data showed loans disbursed by Philippines banks hit P15.175 trillion in February 2025, roughly the same as the P15.173 trillion in January 2025.
It was, however, 12.1 percent higher than February 2024’s P13.54 trillion.
Consumer loans
Ricafort said the latest jobless rate of 3.8 percent in February, which he considers among the best in 20 years, will continue to support growth in consumer loans and overall loans while leading to more income that strengthens the borrowers’ ability to pay back.
Policy rate cuts, both in the US and the Philippines, in the coming months will also help improve the NPL ratio, Ricafort said.
“However, the offsetting risk factor is Trump’s higher US import tariffs and other protectionist policies that could slow down global investments, trade, employment, and other businesses which could reduce sales, incomes and ability to pay by some borrowers,” he added.
Banks to stay ‘cautious’
With the current global headwinds and trade tensions, universal and commercial banks are likely to stay cautious in underwriting new risk, John Paolo Rivera, senior research fellow at the Philippine Institute of Development Studies, said in a separate message.
“Monitoring sector-specific risks, especially among MSMEs and export-linked industries, will be crucial moving forward,” he added.
The BSP report showed that the banking sector’s allowance for credit losses in February 2025 went up 0.22 percent to P489.55 billion from P488.48 billion a month earlier.
This was 4.98 percent higher than the P466.34 billion set aside for credit losses in February 2024.
The non-performing loans’ coverage ratio in February 2025 was 95.36 percent, higher than 95.25 percent a month earlier, but lower than 100.06 percent in February 2024.
