Banks’ bad loan ratio hits 6-month high in Feb.

THE PHILIPPINE BANKING sector’s gross nonperforming loan (NPL) ratio rose to a six-month high in February, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Domestic banks’ gross NPL ratio increased to 3.33% as of end-February from 3.31% a month earlier but eased from 3.38% a year ago.

This was the highest bad loan ratio in six months, or since 3.5% in August last year, and matched the ratio recorded in October.

Loans are considered nonperforming when they remain unpaid for at least 90 days after the due date. These are classified as risk assets since borrowers are unlikely to pay.

Based on BSP data, banks’ nonperforming loans in February reached P553.678 billion, up 0.52% from P550.812 billion in January.

Year on year, bad loans rose by 7.86% from P513.348 billion.

The total loan portfolio of Philippine banks stood at P16.603 trillion at end-February, 0.2% lower than P16.636 trillion in the previous month. It was, however, 9.43% higher than the P15.173-trillion portfolio recorded in February 2025.

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said the recent increase in bad loans mainly reflected “normalization” rather than issues in the banking system’s lending activities.

“The slight uptick in NPLs reflects the lagged impact of last year’s high interest rates, some seasonal cash-flow pressure early in the year, and faster loan growth where a bit of slippage is normal at the margins,” he said in a Viber message.

He noted that an NPL ratio of 3.33% is still “very manageable and well below stress levels,” indicating that banks have strong capitalization and adequate provisioning.

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

At end-February, banks recorded P715.658 billion in past due loans, up 0.57% from P711.581 billion in January and 12.21% higher than P637.808 billion a year ago.

The past due loan ratio edged up to 4.31% from 4.28% in the previous month and 4.2% a year earlier.

Meanwhile, restructured loans declined by 0.48% month on month to P335.392 billion in February from P336.999 billion. However, these rose by 7.81% year on year from P311.106 billion.

This brought the restructured loan ratio to 2.02%, easing from 2.03% in January and 2.05% in February 2025.

Banks’ loan loss reserves grew by 0.12% to P519.525 billion in February from P518.91 billion a month earlier and by 6.12% from P489.551 billion in the prior year.

These accounted for 3.13% of the industry’s total loan portfolio, up from 3.12% in January but down from 3.23% a year ago.

Central bank data also showed that lenders’ NPL coverage ratio, which gauges allowances for potential losses from bad loans, slipped to 93.83% in February from 94.21% in January and 95.36% a year earlier. — Katherine K. Chan