Bad loans ratio eases to 6-month low

MANILA, Philippines — The proportion of banks’ bad loans dropped to its lowest level in six months in September, reflecting improving payment capacity among borrowers as better weather conditions and increased business activity allowed more firms and households to catch up on debt payments.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the banking sector’s non-performing loan (NPL) ratio eased to 3.31 percent in September from 3.5 percent in August.

The September figure marked the lowest level since 3.3 percent in March. It was also lower than the 3.47 percent recorded a year ago.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the decline was largely due to the normalization of business operations in September after several weeks of weather disruptions in previous months.

“This is largely due to better weather conditions in September compared to August, when storms and flooding reduced the number of working days and disrupted loan collection activities,” Ricafort said.

“With more business days, households and enterprises were able to earn more, improving their ability to pay and settle debts as they fell due.”

Based on BSP data, soured loans went up by 4.1 percent to P538.66 billion in September from P517.45 billion in the same month a year ago. Despite the uptick, loan disbursements grew by 9.1 percent to P16.26 trillion from P14.9 trillion.

Past due loans, or those that have fallen behind payment schedules, climbed by 6.9 percent to P676.78 billion from P632.87 billion in the same month last year. Restructured loans, or those whose payment terms have been modified, likewise increased by 12.7 percent to P332.08 billion from P294.53 billion.

To cushion potential defaults, banks increased their loan-loss reserves by 4.6 percent to P504.93 billion from P482.84 billion a year earlier. This translated to a loan-loss reserve level of 3.1 percent and an NPL coverage ratio of 93.74 percent, indicating ample buffers against bad debts.

Ricafort said loan quality could continue to improve toward year-end as consumer spending and business activity typically rise during the Christmas season. However, he cautioned that natural calamities and other economic disruptions could still temper the gains.

“For the coming months, better weather and stronger holiday spending could further enhance borrowers’ repayment capacity, although this may be offset by strong typhoons or other natural disasters in some areas,” he said.

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.

According to the BSP’s report on the Philippine financial system for the first semester, the slower growth in NPLs reflects sustained prudent credit risk management and governance, reinforced by a robust NPL management framework and proactive provisioning.