Philippine banks’ NPL ratio slips to 6-month low

The Philippine banking sector’s bad loan ratio slipped to a six-month low in June as easing inflation made repayments more manageable, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

In June, banks’ gross nonperforming loan (NPL) ratio stood at 3.29%, improving from the 3.44% in May and 3.34% a year earlier.

This was the lowest NPL ratio in six months or since 3.07% in December 2025, and matched the ratio seen in March.

Based on central bank data, soured loans fell by 2.74% to PHP 584.943 billion from PHP 601.41 billion in the previous month. However, it was 10.31% higher year on year from PHP 530.292 billion.

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

The lower NPL ratio came as inflation eased for a second straight month in June, said Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co.

“The easing of banks’ NPL ratio in June reflects the resilience of the Philippine economy, supported by easing inflation,” he said in a Viber message.

Lower oil prices helped inflation slow to a four-month low of 6.4% in June from 6.8% in May.

It marked the second straight month that inflation cooled after the Middle East war-driven energy crisis pushed up the costs of local fuel and other major commodities.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said banks’ efforts to improve their credit risk management amid the crisis have also helped lessen NPLs in June. 

“The latest improvement or easing in banks’ NPL ratio could be attributed to measures to better manage credit risks based on global best practices, given the external risk factors, especially the war (in the) Middle East,” he said via Viber, adding that lower oil prices during the period partly boosted credit conditions.

The industry’s total loan book reached PHP 17.781 trillion, rising by 11.94% from PHP 15.884 trillion a year prior and by 1.71% from P17.481 trillion a month ago.

At end-June, banks logged PHP 753.398 billion in past due loans, up by an annual 12.36% from PHP 670.499 billion but down 1.11% month on month from PHP 761.871 billion.

This accounted for 4.24% of the sector’s loan portfolio during the period, slightly climbing from 4.22% in the same month last year but easing from 4.36% in May.

Meanwhile, banks’ restructured loans grew by 8.32% annually to PHP 337.982 billion in June from PHP 312.03 billion. However, it declined by 2.88% from PHP 348.019 billion in the prior month.

Still, the restructured loan ratio improved to 1.9% from 1.96% a year ago and 1.99% in May.

Meanwhile, lenders’ loan loss reserves amounted to PHP 541.237 billion during the month, inching up by 6.98% from PHP 505.907 billion last year and 1.21% from PHP 534.761 billion a month earlier.

This brought banks’ loan loss reserve ratio to 3.04%, lower than the 3.19% in the comparable year-ago period and 3.06% in May.

BSP data also showed that lenders’ NPL coverage ratio, which gauges allowances for potential losses from bad loans, edged up to 92.53% in June from 88.92% in May but slipped from 95.4% a year earlier.

For Mr. Ravelas, NPLs may still be manageable in the second half of the year, although risks remain from ongoing global geopolitical conflicts and weather disruptions.  

“Looking ahead, bad loans should remain manageable although banks must continue to watch risks from global uncertainties and weather-related disruptions,” he said.

“Overall, the banking sector remains fundamentally sound and well-positioned to manage credit risks,” he added.

However, Mr. Ricafort noted that borrowers may again struggle to repay their loans amid rising oil prices due to renewed tensions in the Middle East, compounded by cost pressures from a weaker peso, the recent wage hike, and the upcoming El Niño season.

On Friday, the peso fell by 9.7 centavos to its new historic low close of PHP 61.847 against the dollar, breaking its previous record-low finish of PHP 61.75 on Thursday, Bankers Association of the Philippines data showed.

Meanwhile, the first tranche of the record PHP 85 minimum wage hike in the National Capital Region took effect on Saturday, bringing the minimum wage in the region up by PHP 60 to PHP 755 for nonagricultural workers and to PHP 718 for agricultural workers and employees of retail, service, and small manufacturing establishments. 

The second tranche or the PHP 25 increase will be imposed on Jan. 20 next year.

The central bank earlier said that inflationary pressures remain strong despite the slowing headline figure, with inflation projected to hit 6.4% this year and remain above its 3% target until 2028. —Katherine K. Chan, Reporter