Bad loans in the Philippine banking system climbed for a second straight month in August, reaching their highest level in nine months as rising consumer costs and slower business activity affected borrowers’ ability to pay.
The industry’s non-performing loan (NPL) ratio rose to 3.5 percent in August from 3.4 percent in July. It marked the fastest pace in three quarters or since the 3.54 percent in November 2024, according to the latest data from the Bangko Sentral ng Pilipinas (BSP).
Loans are classified as non-performing when unpaid for at least 90 days past their due date, posing a risk to banks’ asset quality as borrowers may default on these obligations.
In nominal terms, soured loans grew by 7.3 percent to P550.1 billion in August from P512.7 billion a year earlier.
Despite the increase, total loan disbursements continued to expand, rising by 9.8 percent to P15.71 trillion from P14.3 trillion in the same period last year.
The banking sector’s past due loans, which include all loans with delayed payments, increased by 9.8 percent to P693.1 billion in August from P631.42 billion a year ago.
Restructured loans, or those with modified terms to help borrowers repay, jumped by 12.2 percent to P328.92 billion from P293.16 billion.
Amid higher delinquency levels, banks boosted their loan loss reserves by 7.6 percent to P519.29 billion from P482.49 billion a year ago. This brought their loan loss reserve ratio to 3.31 percent and NPL coverage ratio to 94.4 percent, indicating that banks still have ample buffers to absorb potential defaults.
Credit watcher Moody’s Ratings earlier said that corporate NPLs in the Philippines remain below the systemwide average and provisioning levels continue to be sufficient to absorb potential shocks.
‘Supportive domestic operating conditions and a moderation in financing costs will help contain the increase of new corporate NPLs,’ Moody’s said.
Global investment bank J.P. Morgan likewise pointed to strong loan growth and robust asset quality as key supports for the sector, even as lower policy rates may compress banks’ net interest margins.
‘System NPL ratio remains between 3.5 and four percent, which is low given the double-digit credit growth,’ Jeanette Yutan, J.P. Morgan’s Philippines head of research, earlier said.
The banking system’s NPL ratio has stayed below 3.6 percent since November last year, supported by stable inflation and a series of rate cuts that improved borrowers’ repayment capacity.
The ratio peaked at 4.51 percent in July and August 2021, when the economy was reeling from the effects of the pandemic.