PHILIPPINE BANKS’ gross nonperforming loan (NPL) ratio held steady in August as faster loan growth offset the rise in bad loans, data from the Bangko Sentral ng Pilipinas (BSP) showed.
The banking industry’s gross NPL ratio stood at 3.35% in August, the same ratio recorded in July but lower than the 3.5% seen in the same month last year.
“The banking sector’s steady 3.35% NPL ratio in August suggests that asset quality remains broadly stable despite a challenging operating environment,” Union Bank of the Philippines (UnionBank) Chief Economist Ruben Carlo O. Asuncion said in a Viber message.
He noted that the steady ratio came as the expansion of banks’ loan portfolio outpaced the growth of soured loans in August.
“While gross bad loans increased by 8.4% year on year, the banking industry’s loan portfolio expanded at a faster 13.2% pace, indicating that credit growth continues to outpace the buildup in problem loans,” Mr. Asuncion said.
The year-on-year decline in banks’ NPL ratio likewise reflects “an improvement in asset quality relative to the size of the loan book,” the UnionBank economist added.
Based on central bank data, the amount of NPLs went up by 1.8% to P596.299 billion in August from P585.738 billion in July. Soured loans also climbed by 8.4% year on year from P550.095 billion.
Loans are considered nonperforming once they remain unpaid for at least 90 days after the due date. These are deemed risk assets since borrowers are unlikely to pay.
As of end-August, the banking sector had a total loan portfolio of P17.783 trillion, up by 1.63% from P17.497 trillion a month ago and by 13.21% from P15.709 trillion a year earlier.
Banks’ past due loans increased by 3.72% month on month to P769.891 billion in August from P742.266 billion. It likewise jumped by 11.08% from P693.085 billion in August 2025.
This brought the latest past due loan ratio to 4.33%, higher than the 4.24% in July but lower than the 4.41% in August 2025.
Restructured loans slipped by 0.4% to P340.581 billion in August from P341.96 billion in the previous month. However, it grew by 3.55% from P328.917 billion a year ago.
Still, restructured loans took up less of the industry’s total loan book at 1.92% in August from 1.95% in July and 2.09% in the same month in 2025.
Banks’ loan loss reserves edged up by 1.8% to P555.596 billion in August from P545.749 billion in July and by 6.99% from P519.293 billion in the comparable year-ago period.
This accounted for 3.12% of the sector’s total loan portfolio, unchanged from a month earlier but lower than the 3.31% seen last year.
Meanwhile, lenders’ NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, held steady month on month at 93.17% but slid from 94.4% a year prior.
Earlier, the central bank told BusinessWorld that banks’ recent NPL provisioning trend does not reflect systemic stress or weakening asset quality.
Instead, lenders’ allowance for credit losses and NPL coverage ratio have increased amid growing consumer loans and as part of their risk management, the BSP noted.
For Mr. Asuncion, the industry’s sufficient buffers will allow them to manage NPLs well in the coming months, although lingering economic woes should prompt some caution.
“Looking ahead, NPLs are likely to remain manageable in the near term, supported by banks’ strong capital and provisioning buffers,” he said.
“However, the outlook warrants caution as persistent inflation, the possibility of higher-for-longer interest rates, and signs of moderating economic activity could weigh on borrowers’ repayment capacity and lead to some deterioration in asset quality. While current indicators suggest that the banking system remains resilient, risks to the NPL outlook appear tilted slightly to the upside,” Mr. Asuncion added.
Philippine inflation has held above the central bank’s 3% target for six consecutive months or since the Middle East war broke out earlier this year. It settled at 6.1% in August, bringing the year-to-date average inflation to 5.2%.
Amid persistent price pressures, the BSP extended its tightening cycle in August to deliver its third straight 25-basis-point (bp) rate hike which brought the key policy rate to an over one-year high of 5%.
Markets are anticipating another quarter-point rate hike at the central bank’s meeting this month, with BSP Governor Eli M. Remolona, Jr. earlier signaling that they can keep tightening as needed to bring inflation closer to their target. — Katherine K. Chan