The Philippine banking sector’s bad loan ratio eased to a three-month low in March as stronger lending growth helped offset the rise in nonperforming loans despite risks tied to the ongoing Middle East conflict.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the banking industry’s gross nonperforming loan (NPL) ratio improved to 3.29 percent in March from 3.33 percent in February, remaining within the industry’s typical 3- to 4-percent range. The figure was also slightly lower than the 3.30 percent recorded in the same month last year.

The March ratio marked the industry’s lowest level since December 2025, when banks posted a 3.07-percent bad loan ratio.

Despite the improvement in the ratio, however, the peso value of nonperforming loans still rose by 2.69 percent to P568.554 billion in March from P553.678 billion in February. Year on year, bad loans climbed 10.16 percent from P516.116 billion.

The lower NPL ratio was largely driven by continued expansion in banks’ lending portfolios, which diluted the impact of rising soured loans.

In response to the national energy emergency, the BSP earlier rolled out temporary relief measures to cushion the impact of rising fuel costs and supply disruptions triggered by geopolitical tensions in the Middle East. S&P Global previously noted that while the measures could weigh on bank profitability, they may also help stabilize or improve NPL ratios by supporting borrowers under financial strain.

The BSP measures, approved under Monetary Board Resolution No. 296 on 8 April, allow banks to grant temporary grace periods of up to six months on loan payments for affected borrowers, while agricultural loans may be deferred for up to one year subject to assessment.

The central bank also allowed lenders to temporarily exclude these loans from being classified as past due or nonperforming for up to one year, giving borrowers breathing room while helping banks maintain balance-sheet stability. 

Most major Philippine banks reported low to stable NPL ratios in the first quarter of the year. Industry heavyweights such as BPI, BDO, and Metrobank all posted NPL ratios below the industry average of 3 to 4 percent.

BPI management, however, warned that its NPL ratio could rise due to heavier exposure to consumer lending amid the Middle East crisis and mounting inflation pressures. BDO, meanwhile, continued to post one of the strongest asset-quality metrics among large local banks, with its NPL ratio remaining below 2 percent.

Philippine National Bank (PNB) stood out with a higher NPL ratio of 4.78 percent, although the bank said asset quality remained stable during the first quarter of 2026.

Analysts have warned, however, that prolonged geopolitical tensions and persistently elevated oil prices could still pressure borrowers and weigh on banks’ asset quality in the coming months.