Banks’ bad loans ratio worsens

Climbs to 5-month high in April

MANILA, Philippines — The proportion of soured loans in the banking system rose to its highest level in five months in April, driven by weak income growth and slower business activity.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed that the non-performing loan (NPL) ratio of banks rose to 3.39 percent in April from 3.3 percent in March.

This was the highest level since November 2024, when the NPL ratio stood at 3.54 percent. Still, it was lower than the 3.45 percent recorded in April last year.

Reinielle Matt Erece, an economist at Oikonomia Advisory & Research Inc., said that higher unemployment in the past few months could indicate slower earnings growth, making it harder for borrowers to pay their loans.

“In addition, slow demand and business growth may also impact business cash flows during the period,” Erece said.

“However, the year-on-year improvement of the NPL is a good sign for the financial system as it shows that rate cuts and better growth numbers can positively impact earnings and better repayment trends,” he said.

Based on BSP data, bad debts of banks rose by eight percent to P519.23 billion in April from P480.65 billion in the same month last year.

On the other hand, banks booked a faster 10-percent rise in loan disbursements, to P15.34 trillion in April from P13.94 trillion a year ago as the BSP gradually eased its monetary policy.

The banking sector’s past due loans, referring to all types of loans left unsettled beyond payment date, inched up by 5.7 percent to P653.26 billion in April from P618.04 billion in the same month last year, translating to a past due ratio of 4.26 percent.

Restructured loans, or accounts with modified payment terms to avoid default, grew by 7.3 percent to P311.66 billion in April from P290.37 billion. This translated to a restructured loan ratio of 2.03 percent.

Amid the uptick in problem loans, banks beefed up the allowance for credit losses by 4.8 percent to P493.79 billion in April from P471.35 billion a year ago for a higher loan loss. This translated to an NPL coverage ratio of 95.1 percent as of end-April.

NPLs refer to credit obligations that have not been repaid for at least 90 days past their due date. These loans are considered high-risk assets, signaling a borrower’s weakened capacity or willingness to repay.

The banking sector’s NPL ratio has stayed below the four percent mark since April 2022 as lenders maintained prudent credit standards. The ratio peaked at a 13-year high of 4.51 percent in July and August 2022 due to the impact of the health pandemic.