THE SHARE of bad loans to the total lending portfolio of Philippine banks eased in November 2025, as the previous interest rate cuts of the Bangko Sentral ng Pilipinas (BSP) continued to filter through the economy.
New data from the Bangko Sentral ng Pilipinas (BSP) showed that nonperforming loans (NPL), or debts overdue by at least 90 days and at risk of default, accounted for 3.32 percent of the industry’s total lending book. That was lower than the preceding month’s gross NPL ratio of 3.33 percent.
In peso terms, some P545 billion of the sector’s P16.4-trillion loan book had soured in November. That amount of bad loans was nearly 5 percent higher than a year earlier and up by 1.5 percent month-on-month.
Banks nevertheless increased their buffers against potential credit losses, setting aside P517 billion in loan-loss allowances. That pushed the coverage ratio to 94.92 percent, the highest level since July, when provisioning reached 95.63 percent.
The modest improvement in asset quality coincided with steady credit growth. Loans at big banks expanded by 10.3 percent in November, enlarging the base against which bad loans are measured and helping temper the impact of rising volumes of troubled debt.
This developed amid the BSP’s rate-cutting campaign, which has nudged banks toward higher-yielding — but riskier — consumer loans in an effort to protect their margins.
Since August 2024, the central bank has reduced its benchmark rate — which guides banks’ lending costs — by 2 percentage points, to 4.5 percent. BSP Governor Eli Remolona Jr. has said that the end of the easing cycle was near, adding that any future decisions would depend on data.
In a research note last week, Fitch Ratings said it expects only “modest” pressure on banks’ net interest income even as the BSP continues its easing cycle, pointing to faster loan growth and a rising share of higher-yielding unsecured retail lending.
Still, Fitch cautioned that the strategy carries risks over time.
“Moving down the risk curve with more SME or unsecured consumer lending, among banks in … the Philippines … may boost near-term earnings but heightens risks to asset quality and credit costs in the long term,” the global debt watcher said.
“Strong loan growth is another lever to support profitability and defend market share amid margin pressure,” it added. “This is particularly relevant in some Asia Pacific emerging markets — including India, Vietnam, the Philippines and Indonesia — where robust economic momentum, strong credit demand and policy initiatives are likely to underpin double‑digit, or near double‑digit, system loan growth over the next one to two years.” (Ian Nicolas P. Cigaral © Philippine Daily Inquirer)
