PH banks’ bad loans swelled to 6-mo high in February

The share of bad loans to the total lending portfolio of Philippine banks rose to a six-month high in February, as sticky borrowing costs continued to weigh on debt servicing, especially among retail borrowers.

At the same time, new data showed banks trimmed their allowance for credit losses to a 15-month low despite the uptick in soured loans—a divergence analysts described as a “normalization” of credit quality rather than a sign of weakening prudence among lenders.

Nonperforming loans (NPL), or debts overdue by at least 90 days and at risk of default, accounted for 3.33 percent of the local banking sector’s total lending portfolio as of February, figures from the Bangko Sentral ng Pilipinas showed.

That marked the highest gross NPL ratio since August 2025, when the share stood at 3.50 percent.

In peso terms, roughly P553.7 billion of the sector’s P16.6-trillion loan book had soured in the second month of the year. The stock of bad loans was almost 8 percent higher than a year earlier and 5.3 percent above the December 2025 level.

Even so, banks pared their buffers against unpaid loans, though the cushion remained sizable. Lenders set aside P519.5 billion as allowance for credit losses, translating to a coverage ratio of 93.83 percent—the lowest since November 2024, when buffers covered 93.21 percent of NPL.

“What we’re seeing is less a credit problem and more a normalization story,” said Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., who attributed the rise in bad loans to the lagged impact of last year’s high interest rates, early-year cash-flow pressures and faster loan growth.

“Bottom line: this is a mild bump, not a red flag—but it reinforces the need for closer credit monitoring if rates stay high longer,” Ravelas added.

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Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, said the decline in provisioning was not a cause for concern.

“With capital and profitability still strong, banks may be relying more on existing buffers rather than materially increasing provisions each month—suggesting normalization rather than weakening risk discipline,” he said.

Looking ahead, John Paolo Rivera, a senior research fellow at the Philippine Institute for Development Studies, said the conflict in the Middle East and the historic oil shock it unleashed could weigh on borrowers’ ability to repay, though banks appear well positioned to absorb any deterioration in asset quality.