The ratio of bad loans to total loans at Philippine banks eased to 3.34 percent in June, the lowest in three months, from 3.38 percent in May, according to data from the Bangko Sentral ng Pilipinas (BSP) released on Tuesday.
The gross non-performing loans (NPLs) ratio also improved from 3.51 percent recorded in June 2024 and below the pandemic high of 4.51 percent seen in July and August 2021.
Loans are classified as non-performing when a borrower’s obligations have not been repaid for 90 days past their due date.
The improvement in asset quality can be attributed to faster bank loan growth and a reduction in interest rate costs, said Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC).
“Lower Fed and BSP policy rates since the latter part of 2024 reduced interest rate costs and fundamentally improved the ability to pay by some borrowers,” Ricafort said.
He said the improved credit risk management standards, based on global best practices, also contributed to the lower NPL ratio.
Despite the easing of the NPL ratio, the value of gross non-performing loans increased to P530.29 billion in June from P502.42 billion a year ago.
The banking sector’s total loan portfolio expanded to P15.88 trillion in June from P14.32 a year earlier.
Past due loans that are not yet classified as non-performing also rose to P670.5 billion in June from P614.17 billion a year earlier.
