NPL ratio rises to 9-month high in Aug.

Philippine banks’ gross nonperforming loan (NPL) ratio rose to a nine-month high in August, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

The local banking sector’s gross NPL ratio worsened to 3.5% in August from 3.4% in the previous month. However, it eased from the 3.59% recorded a year earlier.

August’s bad loan ratio was the highest in nine months or since 3.54% in November 2024.

Loans are considered nonperforming once they are unpaid for at least 90 days after the due date. These are deemed as risk assets since borrowers are unlikely to pay.

Preliminary BSP data showed that soured loans edged up by 2.7% to PHP 550.095 billion in August from PHP 535.448 billion in July.

Year on year, nonperforming loans went up by 7.3% from PHP 512.704 billion.

The total loan portfolio of Philippine banks stood at PHP 15.709 trillion in August, down by 0.4% from PHP 15.771 trillion in July. However, it climbed by 9.9% from PHP 14.299 trillion a year ago.

“The slight uptick in banks’ NPL ratio to 3.5% in August reflects softer economic momentum and early stress in consumer and MSME (micro, small, and medium enterprises) segments amid cost pressures,” Union Bank of the Philippines (UnionBank) Chief Economist Ruben Carlo O. Asuncion said in a Viber message.

Meanwhile, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said bad weather affected many businesses, affecting borrowers’ ability to repay debts.   

“This is largely due to weather-related disruptions since July 2025, in view of the series of storms (and) flooding that reduced business days, sales and incomes of businesses and people, thereby reducing the ability to pay by some borrowers,” he said in a Viber message.

From late July to early August, tropical storms Crising, Dante and Emong, and the southwest monsoon brought heavy rains and flooding across the country.

Mr. Ricafort said the higher bad loan ratio in August partly reflected the impact of US President Donald J. Trump’s recent policies on the economy.

“This is on top of the slower global and local (economy) due to Trump’s higher tariffs, protectionist measures, and the resulting trade wars that reduced exports and global trade, investments, employment and other economic activities,” he added.

The US imposed a 19% tariff on Philippine goods starting Aug. 7.

Based on central bank data, past due loans inched up by 0.8% to PHP 693.085 billion in August from PHP 687.588 billion in July and by 9.8% from PHP 631.421 billion in August last year.

This brought the past due loan ratio to 4.41%, higher than the 4.36% in July but slightly lower than the 4.42% last year.

Restructured loans, on the other hand, dipped by 0.2% to PHP 328.917 billion in August from PHP 329.643 billion a month ago, but increased by 12.2% from PHP 293.162 billion in August 2024.

This accounted for 2.09% of the industry’s total loan portfolio, unchanged from July but higher than the 2.05% seen a year prior.

Meanwhile, banks’ loan loss reserves amounted to PHP 519.293 billion, up by 1.4% from PHP 512.061 billion in July and by 7.6% from PHP 482.489 billion a year earlier.

With this, the August loan loss reserve ratio was higher month on month at 3.31% from 3.25% in July but down from 3.37% the previous year.

Lenders’ NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, slipped to 94.4% in August from 95.63% in July. However, it was above the 94.11% logged in August 2024.

“While some upward drift is possible as loan portfolios mature, we expect asset quality to remain broadly manageable, supported by strong capital buffers and recent monetary easing,” UnionBank’s Mr. Asuncion said.

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said the bad loan ratio reflects sluggish economic growth, elevated borrowing costs, and lingering repayment challenges among consumers and small businesses.

“Unless these floodgate issues are resolved soon, growth challenges remain (and) NPLs may remain elevated,” he said in a Viber message, referring to the corruption scandal involving government flood control projects.

On Thursday, the central bank delivered a surprise 25-basis-point (bp) cut, bringing the benchmark policy rate to a three-year low of 4.75%.

BSP Governor Eli M. Remolona, Jr. said the fourth straight cut this year came as recent corruption issues affected business sentiment and weakened the growth outlook.

The Monetary Board has so far slashed borrowing costs by a cumulative 175 bps since it began its easing cycle in August 2024.

Mr. Remolona also left the door open for another cut at their last policy-setting meeting this year on Dec. 11 and possibly more next year. — Katherine K. Chan