Post-holiday squeeze pushes PH bank bad loans higher
Bad loans accounted for a bigger slice of Philippine banks’ lending portfolios in January, a sign that some borrowers may have felt the squeeze after the holiday season’s typical spending surge tightened household and business cash flows.
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 3.31 percent of the industry’s total loan portfolio.
That marked the highest gross NPL ratio since November 2025, when the share stood at 3.32 percent.
In peso terms, roughly P550.8 billion of the sector’s P16.6-trillion loan book had soured in the first month of the year. The stock of bad loans was 7.4 percent higher than a year earlier and nearly 5 percent above the December level.
Even so, banks maintained a sizeable financial cushion. Lenders had set aside nearly P519 billion in allowances for potential credit losses, translating to a coverage ratio of 94.21 percent. Still, that marked the lowest level of provisioning since September 2025, when buffers covered 93.85 percent of NPLs.
The uptick in bad loans came as credit growth among big banks slowed to 9.3 percent in January, the weakest pace in nearly two years. Slower lending meant banks were not expanding their loan books as quickly, narrowing the base used to calculate the NPL ratio.
The pressure surfaced even as the central bank presses ahead with rate cuts meant to stimulate the economy. Lower borrowing costs have nudged banks toward higher-yielding—but riskier—consumer loans as they try to protect profit margins.
Beyond that, John Paolo Rivera, a senior research fellow at the Philippine Institute for Development Studies, said the January uptick likely reflected the usual post-holiday credit adjustments, when borrowers face tighter liquidity after year-end spending.
“Some borrowers may face tighter cash flow, which can temporarily raise delinquencies,” Rivera said.
“The slight decline in the NPL coverage ratio may indicate that banks are moderating provisioning as asset quality has generally stabilized in recent years, though it also suggests lenders remain cautious in managing credit risks,” he added.
Leonardo Lanzona, an economist an Ateneo De Manila University, said the dip in provisioning “warrants watching”.
“When you see them diverge — NPLs going up while provisioning goes down — it means the buffer between a bank and actual losses is thinning precisely when it should be thickening. Profit-driven provisioning pullback can be self-defeating,” Lanzona said.
“This is procyclical behavior: it makes banks look healthier during a downturn than they actually are, which can delay corrective action,” he added.
Looking ahead, Rivera said the banking sector’s asset quality should remain broadly manageable, though still under mild pressure. Sticky borrowing costs, slower economic growth and elevated energy prices—exacerbated by the ongoing Iran war—could weigh on some borrowers.
“NPL ratio is likely to stay within a manageable range around 3 percent to 4 percent, supported by stable household income from services, remittances and continued bank risk management,” he said.
