Banks’ bad loans ease to over 5-yr low
The share of problem loans in the Philippine banking system’s total lending portfolio fell in December 2025 to its lowest level in more than five years, as a graft-induced confidence shock rattled borrowers and led banks to tighten lending standards, curbing the accumulation of potentially troubled debt.
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 3.08 percent of the industry’s total loan book.
That marked the lowest share since August 2020, when the NPL ratio stood at 2.84 percent.
In peso terms, some P527 billion of the sector’s P17.1-trillion loan book had soured in December. That amount of bad debts was 5.3 percent higher than a year earlier but down by 3 percent month-on-month.
Cid Terosa, a senior economist at the University of Asia and the Pacific, said the easing in the NPL ratio may partly reflect softer demand for credit. Separate central bank data showed that lending by big banks grew 9.2 percent in December, the slowest pace in 22 months, as the economy grappled with the fallout from an expanding graft investigation that has dented business and consumer confidence.
Amid the crisis of confidence, banks appear to be maintaining a cautious stance. Lenders set aside P510.5 billion in December to cover potential losses from unpaid loans, bringing the coverage ratio—a measure of buffers against bad loans—to 96.93 percent, the highest since April 2024, when it stood at 98.07 percent.
“Businessmen and investors continue to take cautious and calculated business and investment plans due to perceived governance failures and their consequences,” Terosa said.
