DBP braces for rise in bad loans from flood MESS fallout
State-run Development Bank of the Philippines (DBP) is bracing for an increase in its nonperforming loans (NPL) ratio as the fallout from the flood control corruption scandal slows government spending and delays payments.
DBP President and CEO Michael de Jesus told reporters that the bank expects its NPL ratio to rise by around 0.5 percentage point, prompting them to raise provisions that will cover 100 percent of its bad loans.
The provisioning is estimated to be P1 billion to P2 billion, and is also projected to pull down the bank’s 2025 net income by roughly the same amount.
“The net income growth this year will have a lot of nonperforming loans. I would say big amounts, but not too many, so we have to reserve for those. That will eat up on our net income,” he said.
NPLs are debts overdue by at least 90 days and at risk of default.
While DBP does not finance any contractors related to the flood control, de Jesus said the political noise pushed the bank to adopt a more cautious stance, especially with 50 to 60 percent of its portfolio tied to infrastructure.
“Like many banks, we have many contractors as customers, so we’re just very careful now, make sure that there are no ghost projects, no flood control projects. We’re very strict, much stricter now than ever with regards to contractors,” he said.
Loan demand
De Jesus added that they are still “anxious” in terms of outlook on loan demand.
“The whole environment is just wait and see. There’s a lot of anxiety. There’s definitely an effect in terms of loan demand and new business,” he said.
“Even the good contractors are having problems with some of their receivables. We haven’t seen it yet but we expect to see that some of our borrowers will be affected in terms of loan repayments.”
This confirms an earlier warning from Fitch Ratings, which said the probe into the anomalous flood control projects may hurt the asset quality of Philippine banks as contractors face tighter cash flows.
Further, de Jesus said that they placed legitimate flood control projects on hold until a national coordinating body is formed.
Despite the short-term pressures, he expects the strain on repayments and income to ease once infrastructure spending normalizes. DBP is anticipating a stronger rebound in the first quarter of 2026.
