Banks’ bad loans hit 6-month high in February

April 10, 2026 | 12:00am

MANILA, Philippines — The share of soured loans in the banking sector inched higher in February, hitting a six-month high as softer economic activity and base effects from slower lending growth weighed on credit quality.

Data from the Bangko Sentral ng Pilipinas showed that the industry’s non-performing loan (NPL) ratio picked up to 3.33 percent in February from 3.31 percent in January, marking the highest in six months or since the 3.5 percent in August last year.

NPLs refer to credit obligations that have not been repaid for at least 90 days past their due date. These loans are considered high-risk assets, signaling a borrower’s weakened capacity or willingness to repay.

In peso terms, bad loans increased by 7.9 percent to P553.68 billion in February from P513.35 billion a year earlier, partly cushioned by robust lending growth.

The banking system’s gross total loan portfolio went up by 9.4 percent to P16.6 trillion from P15.17 trillion in the same period a year ago.

RCBC chief economist Michael Ricafort said the uptick in the NPL ratio was partly a result of slower loan expansion in recent months, which reduced the denominator and mechanically pushed the ratio higher.

“Slower growth in bank loans in recent months led to lower base or denominator effects that mathematically led to some pick up in banks’ NPL ratio,” he said.

He added that softer economic conditions also contributed to the rise in bad loans, citing reduced business activity linked to government underspending on infrastructure projects.

Past due loans or obligations unpaid but not yet classified as non-performing climbed by 12.2 percent to P715.66 billion from P637.81 billion.

Restructured loans also rose by 7.8 percent to P335.39 billion from P311.11 billion, indicating that more borrowers continue to renegotiate their payment terms.

To safeguard against potential losses, banks increased their provisioning. Loan loss reserves expanded by 6.1 percent to P519.53 billion in February from P489.55 billion a year ago. This translated to a reserve level of 3.13 percent and an NPL coverage ratio of 93.83 percent.

Looking ahead, Ricafort warned that emerging risks, particularly rising oil prices stemming from geopolitical tensions in the Middle East, could further strain borrowers.

“The latest NPL data have yet to fully reflect the effects of the war on the Middle East since February that led to sharply higher prices of crude oil… This could reduce the disposable incomes… thereby could also reduce the ability to pay by some borrowers,” he said.

Despite the uptick, the banking system’s asset quality remains relatively stable. The industry’s NPL ratio has been below the 3.5-percent level since August last year as stable inflation and a series of interest rate cuts have boosted credit quality.

The ratio peaked at 4.51 percent in July and August 2021 as the Philippine economy struggled due to the impact of the pandemic.