Banks’ NPL ratio climbs to 3.40% in July

The ratio of non-performing loans (NPLs) in Philippine banks rose to 3.40 percent in July, the highest in eight months, from 3.34 percent in June, data from the Bangko Sentral ng Pilipinas (BSP) showed Friday.

Despite the month-on-month increase, the latest figure remained lower than the 3.58 percent posted in July 2024 and well below the pandemic high of 4.51 percent.

In peso terms, the banking sector’s gross NPLs expanded to P535.45 billion in July from P508.11 billion a year ago. The sector’s total loan portfolio grew to P15.77 trillion, up from P14.21 trillion in July 2024, but slightly below June’s P15.88 trillion. Past due loans also climbed to P687.59 billion, compared to P625.71 billion in the same month last year.

NPLs are defined as loan obligations unpaid for more than 90 days past their due date, while past due loans cover all delayed payments regardless of duration.

Michael Ricafort, chief economist at Rizal Commercial Banking Corporation, said the uptick reflected “slower local economic growth prospects, indirectly weighed down by the weaker world economic outlook – mainly caused by Trump’s higher tariffs, trade wars, and protectionist measures.”

He added that such external shocks dampen exports, trade, and supply chains, ultimately squeezing the repayment capacity of businesses and households. The exit of Philippine Offshore Gaming Operators (POGOs) since end-2024 also weighed on related industries’ loan servicing ability.

Still, Ricafort noted that recent policy rate cuts – a total of 1.50 percentage points by the BSP and 1.00 percentage point by the US Federal Reserve since late 2024 – have provided relief by lowering debt-servicing costs.

“Faster growth in bank loans also helps expand the denominator for NPLs, keeping the ratio at one of the lowest in nearly five years,” he said.

Sectoral strains

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., said the rise in the NPL ratio highlights “lingering stress in certain sectors – especially SMEs and consumer loans – as households and businesses continue to adjust post-pandemic amid global uncertainty.”

“Banks are rightly beefing up provisions. It’s a sign they’re cautious, not complacent,” Ravelas said, adding that NPLs may remain elevated in the near term but could stabilize toward year-end if consumer confidence and job creation improve.

Consumer risk

JP Rivera, economist, pointed to the delayed effects of tighter credit conditions earlier in the year and a possible shift toward riskier lending as rates started easing.

“While falling interest rates support repayment capacity, they may also encourage more credit risk-taking, particularly in consumer segments like buy-now-pay-later and online lending, where delinquencies are rising,” Rivera said.

He expects NPLs to inch higher in the coming months as banks rebalance portfolios toward consumer lending. However, he noted that stronger provisioning and better credit risk tools should help contain systemic risks.