By Katherine K. Chan, Reporter
THE PHILIPPINE BANKING sector’s gross nonperforming loan (NPL) ratio fell to its lowest so far this year at end-September, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.
The banking industry’s gross NPL ratio dropped to 3.27% in September from 3.35% in August and 3.31% a year earlier, based on data posted on the central bank’s website.
September saw the lowest bad loan ratio in nine months or since 3.07% in December last year.
This came as soured loans slipped by 0.51% to P593.275 billion in September from P596.299 billion in August.
Year on year, however, it climbed by 10.09% from P538.924 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.
At end-September, the industry’s total loan portfolio stood at P18.133 trillion, up by 1.97% from P17.783 trillion a month ago and by 11.42% from P16.276 trillion a year earlier.
BSP data showed that past due loans rose by 0.24% month on month to P771.748 billion in September from P769.891 billion in August. It likewise went up by 13.86% from P677.822 billion at end-September 2025.
Still, banks’ past due loan ratio fell to 4.26% in September from 4.33% in August but worsened from 4.16% a year prior.
Lenders’ restructured loans edged up by 0.65% to P342.783 billion from P340.581 billion in August and by 3.01% from P332.761 billion in the comparable year-ago period.
This accounted for 1.89% of the sector’s total loan book, lower than 1.92% from a month earlier and the 2.04% seen last year.
Meanwhile, banks’ loan loss reserves inched up by 0.43% to P557.979 billion in September from P555.596 billion in August. It also grew by 10.32% from P505.768 billion in September 2025.
This brought the sector’s loan loss reserves ratio to 3.08% in September, declining from 3.12% a month ago and 3.11% in the prior year.
Central bank data also showed that lenders’ NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, climbed to 94.05% at end-September from 93.17% in August and 93.85% a year ago.
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.
Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., noted that steady lending activity helped banks manage credit stress and improve their asset quality during the period.
“The decline in banks’ NPL ratio to 3.27% signals improving asset quality and highlights the resilience of both borrowers and lenders,” he said in a Viber message. “Steady loan growth, and stable economic activity have helped contain credit stress.”
Based on the latest available BSP data, big banks’ total outstanding loans, net of reverse repurchase agreements, climbed by an annual 11% to P15.121 trillion at end-August from P13.618 trillion.
This outpaced the 10.4% year on year expansion in July, marking the fastest lending growth seen in three months or since the 12.1% in May.
However, think tanks and credit raters have warned that loan growth could slow into next year as tighter financial conditions driven by tepid economic activity and rising interest rates weigh on borrowers’ appetite.
“For the fourth quarter, NPLs could remain manageable or even improve further, although inflation, borrowing costs, and the pace of economic growth will remain key factors influencing loan repayment behavior,” Mr. Ravelas also noted.
Last week, the BSP extended its tightening cycle after delivering a larger-than-expected 50-basis-point hike to bring its key policy rate to a nearly two-year high of 5.5%.
BSP Governor Eli M. Remolona, Jr. has left the door open for further tightening as they expect inflation to remain elevated until next year, with the headline clip likely to peak this quarter as oil shocks and the Super El Niño intensify price pressures.
The Monetary Board will hold its last meeting of the year on Dec. 17.
