Banks’ NPL ratio improves in March

By Katherine K. Chan, Reporter

THE PHILIPPINE BANKING sector’s nonperforming loan (NPL) ratio declined in March, data from the Bangko Sentral ng Pilipinas (BSP) showed, reflecting borrowers’ strong repayment capacity despite the Middle East war.

Based on the latest central bank data, banks’ bad loan ratio improved to 3.29% in March from 3.33% in February.

This was the lowest ratio since 3.07% in December last year and was also down from 3.3% in March 2025.

“The slight easing in the NPL ratio to 3.29% in March likely reflects a mix of stronger loan growth, residual borrower resilience, and regulatory flexibility, rather than a fundamental improvement in asset quality — suggesting that households and firms are still broadly current on their obligations despite the Middle East conflict,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said via Viber.

Borrowers’ steady repayments despite external risks and banks’ preemptive move to tighten their credit standards and restructure loans helped protect their asset quality, said Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co.

“It’s a marginal but positive move,” he said in a Viber message. “Borrowers are still paying — helped by steady jobs and manageable cash flows. Banks’ earlier prudence (tight lending, restructuring) is also cushioning asset quality.”

“So far, resilience is holding. External shocks haven’t derailed repayment behavior yet. The domestic economy remains the anchor.”

The lower NPL ratio for the month came even as banks’ nonperforming loans edged up by 2.69% to P568.554 billion as of March from P553.678 billion in February.

Year on year, soured loans jumped by 10.16% from P516.116 billion at end-March 2025.

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.

At end-March, Philippine banks had a total loan book of P17.263 trillion, growing by 3.97% from P16.603 trillion a month prior and by 10.44% from P15.631 trillion in the same period last year.

Meanwhile, their past due loans increased by 2.87% to P736.181 billion from P715.658 billion as of February and by 13.9% from P646.368 billion a year earlier.

Banks’ past due loan ratio improved month on month to 4.26% from 4.31% but worsened from 4.14% in March 2025.   

Restructured loans reached P338.39 billion as of end-March, rising by 0.89% from P335.392 billion as of February and by 8.64% from P311.485 billion in the previous year.

These accounted for just 1.96% of the sector’s total loan portfolio during the period, lower than the 2.02% seen in February and 1.99% last year.

On the other hand, banks’ loan loss reserves slipped by 0.01% month on month to P519.46 billion as of March from P519.525 billion. However, this was 5.89% higher than the P490.564 billion in the comparable year-ago period.

This was equivalent to 3.01% of their total loan book, lower than 3.13% in February and 3.14% in the same month in 2025.

BSP data also showed that banks’ NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, slipped to 91.37% in March from 93.83% a month earlier and 95.05% a year ago.

Mr. Asuncion said banks’ soured loans are likely to stay manageable, but the economic fallout from the Middle East conflict could test borrowers’ ability to repay their debt.

“(T)his resilience may prove temporary, as the transmission of higher oil prices, inflation, and tighter financial conditions typically lags, which could gradually erode repayment capacity, particularly among MSMEs (micro, small, and medium enterprises) and retail borrowers,” he said.

“As such, while NPLs may remain relatively contained in the near term, risks are tilted to the upside, with a stabilization or mild uptick more likely in the coming months should external shocks persist and begin to weigh more meaningfully on incomes, consumption, and business margins.”

Mr. Ravelas also said that the NPL ratio could be steady or slightly higher in the coming months, as the US-Iran war could lead to a higher-for-longer interest rate environment, sticky inflation due to rising global oil prices, and continued peso depreciation amid the lack of a peace deal.

He added that the outlook remains fragile as risks continue to build.

The central bank last month began its tightening cycle, raising its policy rate by 25 basis points to 4.5% in a move to contain second-round price effects and keep inflation expectations anchored amid the energy crisis.

BSP Governor Eli M. Remolona, Jr. earlier said they could continue delivering modest rate hikes to steer inflation back to their 2%-4% tolerance band.

The Monetary Board will hold its next policy meeting on June 18.

The Philippines imports over 90% of its oil from the Middle East and is also a heavy net importer of food, making it highly vulnerable to global price shocks.

In April, headline inflation accelerated to 7.2% in April from 4.1% a month earlier, the fastest since March 2023, as the crisis pushed up prices of food and utilities. This is well above the central bank’s 2%-4% goal.

Gross domestic product growth also slowed to a new post-pandemic low of 2.8% in the first quarter as the fallout from a corruption scandal and soaring oil prices dampened economic activity.

The conflict has also hit financial markets, with the peso now trading at the P60-per-dollar level versus its P58.79 finish at end-2025. On Friday, it plunged to a new record low of P61.721 against the greenback.