Banks’ bad loans ratio eases to 3.5%

MANILA, Philippines — The asset quality of the Philippine banking industry continued to improve as the non-performing loan (NPL) ratio of banks declined to a two-month low of 3.54 percent in November last year from 3.6 percent a month ago.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the NPL ratio in November was the lowest since the 3.47 percent recorded in September last year, as the level of loans disbursed by Philippine banks improved.

NPLs refer to credit obligations that have not been repaid for at least 90 days past their due date. These loans are categorized as high-risk assets because they indicate a borrower’s diminished ability or willingness to meet financial obligations.

Based on central bank data, loans disbursed by banks expanded by 10.3 percent to P14.72 trillion from January to November last year compared to P13.34 trillion in the same period in 2023.

During the 11-month period, the industry’s bad debts accelerated by 14.6 percent to P520.53 billion from P454.28 billion a year ago.

As of end-November last year, banks’ past due loans increased by nearly 13 percent to P635.62 billion from P563.38 billion a year ago, for a past due ratio of 4.32 percent.

The sector’s restructured loans amounted to P293.7 billion in end-November last year, four percent lower than the P305.81 billion booked in the same month in 2023, translating to a restructured loan ratio of two percent.

Soured loans are a key indicator of a lender’s asset quality and pose challenges for banks as they set aside additional funds to cover potential losses, which can negatively impact profitability and liquidity.

Amid rising defaults, banks’ allowance for credit losses increased by 5.2 percent to P485.13 billion from P460.95 billion. This translated to an NPL coverage ratio of 93.2 percent in end-November last year.

BSP Governor Eli Remolona Jr. earlier said the outlook for the Philippine banking system remains optimistic as lenders project double-digit growth in assets, loans, deposits and net income this year.

“Banks are also committed to maintaining capital and liquidity buffers above regulatory standards, with strategic priorities focused on credit expansion, operational efficiency and digitalization,” he told The STAR.

“Overall, the Philippine banking system is well-positioned to navigate the evolving economic and financial landscape,” Remolona said.