Banks’ bad loans ratio eases to two-year low

February 14, 2025 | 12:00am

MANILA, Philippines — The soured loans of Philippine banks continued to ease in December last year, hitting the lowest level in two years, as improved borrower repayment capacity and sustained economic activity helped reduce defaults.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the banking industry’s non-performing loan (NPL) ratio improved further to 3.27 percent in December from 3.54 percent in November.

NPLs refer to credit obligations that have not been repaid for at least 90 days past their due date. These loans are categorized as high-risk assets because they indicate a borrower’s diminished ability or willingness to meet their financial obligations.

The share of bad debts to the total loans disbursed by banks has been easing since October last year amid the rate cuts of the BSP’s Monetary Board.

The industry’s soured loans increased by 11.4 percent to P500.32 billion in end-2024 from P449.06 billion in end-2023, but loans disbursed by banks booked a double-digit 12.2-percent increase to P13.1 trillion from P11.71 trillion.

Likewise, the banking sector’s past due loans went up by 10.2 percent to P604.91 billion from P548.95 billion, while restructured loans inched up by 2.6 percent to P310.44 billion from P302.52 billion.

Soured loans are a key indicator of a lender’s asset quality and pose challenges for banks as they set aside additional funds to cover potential losses, which can negatively impact profitability and liquidity.

Philippine banks reported that loan loss reserves rose by 5.2 percent to P480.69 billion in end-December last year from P456.85 billion in end-December 2023.

This translated to a loan loss reserve level of 3.14 percent and an NPL coverage ratio of 96.08 percent.

BSP Governor Eli Remolona Jr. earlier said the outlook for the Philippine banking system remains optimistic as lenders project double-digit growth in assets, loans, deposits and net income this year