PH banks’ bad-debt ratio hit 2-month high
Bad loans of the local banking industry accounted for a larger share of their lending portfolios in October, reaching a two-month high, as a run of storms that disrupted livelihoods and sticky borrowing costs appeared to strain borrowers’ ability to pay on time.
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 3.33 percent of the industry’s total loan portfolio.
That marked the highest share since August 2025, when the NPL ratio stood at 3.5 percent.
In peso terms, some P537 billion of the sector’s P16.1-trillion loan book had soured in October. That amount of soured loans was 2.4 percent higher than a year earlier but down by 0.25 percent month-on-month.
Banks responded by setting aside P508.3 billion in allowances against potential losses, putting the coverage ratio at 94.65 percent, the highest level of provisioning since July 2025’s 95.63 percent.
The uptick in bad loans came as credit growth among big banks slowed to a 16-month low of 10.3 percent in October.
The slower lending kept banks from meaningfully expanding their loan books, narrowing the base used to calculate the NPL ratio and making even steady or slightly higher volumes of bad debt stand out more. Analysts pointed to still elevated borrowing costs and subdued sentiment of corporate and retail borrowers, which was weighed down by governance concerns and income losses from successive storms.
This strain emerged despite the BSP’s ongoing rate-cutting campaign, which has nudged banks toward higher-yielding—but riskier—consumer loans in an effort to protect their margins.
All 13 economists surveyed by the Inquirer last week expected the powerful Monetary Board to slash the benchmark rate—which guides bank lending costs—by a quarter point to 4.5 percent at the policymaking body’s Dec. 11 meeting, the board’s last for the year. The consensus would bring the cumulative reductions since the easing cycle started in August last year to 2 percentage points.
Even so, BSP figures showed average lending rates at big banks stood at 7.817 percent in September, only about 3 percent lower than at the end of last year. This stickiness, experts said, could dampen the BSP’s efforts to support economic growth and weigh down on debt servicing of borrowers.
“The Philippines’ real interest rate stands at around 3 percent versus its regional peer average of 1.5 to 2 percent, providing BSP with ample room for rate cuts,” Junjie Huang, an economist at Deutsche Bank, said.
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