Uptick in soured loans pushes banks’ NPL ratio to 3.38 percent in January

March 12, 2025 | 12:00am

MANILA, Philippines — After easing for two straight months, the gross non-performing loan (NPL) ratio of banks rose to 3.38 percent in January from 3.27 percent in December last year.

Latest data from the Bangko Sentral ng Pilipinas showed that the NPLs or soured loans of the banking sector went up by 11.3 percent to P512.83 billion in January from P460.76 billion in the same month last year.

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.

Rizal Commercial Banking Corp. chief economist Michael Ricafort attributed the uptick in NPLs to the seasonal slowdown in sales, earnings and overall business activity after the Christmas season.

He said that the holiday boost, driven by higher incomes from bonuses and strong consumer demand, typically improves borrowers’ ability to pay.

However, the start of the year often brings a reality check, resulting in a slight increase in NPLs.

Looking ahead, Ricafort said the recent cut in the reserve requirement ratio, which is set to take effect on March 28, could inject around P330 billion into the banking system.

This is expected to boost banks’ lending capacity and investments, as well as lower intermediation and borrowing costs, potentially increasing loan demand and helping improve the NPL ratio by expanding the loan base.

Loans disbursed by big banks grew at a faster rate of 12.8 percent to P13.02 trillion in January from P11.54 trillion in the same month last year.

Based on BSP data, past due loans – referring to all types of loans left unsettled beyond payment date – increased by 10.8 percent to P633.07 billion from P571.56 billion for a past due ratio of 4.17 percent.

The industry’s restructured loans inched up by 3.1 percent to P311.22 billion in January from P302 billion in the same month last year, translating to a restructured loan ratio of 2.05 percent.

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.

Amid the rising soured loans, the sector’s allowance for credit losses went up by 5.7 percent to P488.48 billion from P462.12 billion for a higher loan loss reverse level of 3.22 percent.

This translated to an NPL coverage ratio of 95.25 percent, lower than the previous year’s 100.29 percent.