PH banks’ bad loan ratio rises to 8-mo high

Philippine banks’ bad loan ratio rose to an eight-month high in April as borrowers felt the sting of inflation, slow economic growth and higher borrowing costs amid the war in the Middle East.

Nonperforming loans (NPL), or debts overdue by at least 90 days and at risk of default, accounted for 3.37 percent of the local banking sector’s total lending portfolio as of April, figures from the Bangko Sentral ng Pilipinas (BSP) showed.

READ: Philippine banks’ bad loans swelled to 6-month high in February

That marked the highest gross NPL ratio since August 2025, when the share stood at 3.5 percent.

In peso terms, roughly P579.9 billion of the sector’s P17.2-trillion loan book had soured during the month.

The stock of bad loans was nearly 12 percent higher than a year earlier and almost 2 percent higher month-on-month.

Even so, banks pared their buffers against unpaid loans, though the cushion remained sizable.

Lenders set aside P526.8 billion as allowance for credit losses, translating to a coverage ratio of 90.85 percent—the lowest since April 2022, when buffers covered 90.6 percent of NPL.

“The uptick in the NPL ratio likely reflects the lagged impact of elevated interest rates on borrowers, alongside normalization in asset quality after the postpandemic recovery,” said Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines.

“We expect NPLs to remain broadly stable with a slight upward bias in the near term, before easing as monetary conditions improve,” Asuncion added.

John Paolo Rivera, a senior research fellow at state-run Philippine Institute for Development Studies, said the data suggested that some borrowers are starting to feel the effects of elevated inflation, slower growth and higher interest rates amid the global oil shock triggered by the Middle East conflict.

“The decline in the NPL coverage ratio indicates that provisions have not grown as fast as bad loans, resulting in a smaller buffer against potential losses,” Rivera added.

In its report on the Philippine financial system for the second half of 2025, the BSP said banks and nonbank financial institutions had remained in sound condition during the period, leaving the industry well-positioned when the Middle East crisis escalated earlier this year.

The central bank raised its key policy rate by 25 basis points to 4.5 percent at its April 23 meeting, citing a “deteriorating” inflation outlook.

Policymakers said they remained “committed” to bringing inflation back to its 3 percent target within a reasonable timeframe.

“Further rate hikes could put additional pressure on repayment capacity, particularly among households and MSMEs,” Rivera said.

“While the banking system remains broadly resilient, asset quality risks are likely to remain elevated in the coming months,” he said. INQ