By Katherine K. Chan
PHILIPPINE BANKS’ gross nonperforming loan (NPL) ratio rose to a nine-month high in August, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.
The local banking sector’s gross NPL ratio worsened to three.5% in August from 3.4% within the previous month. Nevertheless, it eased from the three.59% recorded a 12 months earlier.
August’s bad loan ratio was the very best in nine months or since 3.54% in November 2024.
Loans are considered nonperforming once they’re unpaid for not less than 90 days after the due date. These are deemed as risk assets since borrowers are unlikely to pay.
Preliminary BSP data showed that soured loans edged up by 2.7% to P550.095 billion in August from P535.448 billion in July.
12 months on 12 months, nonperforming loans went up by 7.3% from P512.704 billion.
The full loan portfolio of Philippine banks stood at P15.709 trillion in August, down by 0.4% from P15.771 trillion in July. Nevertheless, it climbed by 9.9% from P14.299 trillion a 12 months ago.
“The slight uptick in banks’ NPL ratio to three.5% in August reflects softer economic momentum and early stress in consumer and MSME (micro, small, and medium enterprises) segments amid cost pressures,” Union Bank of the Philippines (UnionBank) Chief Economist Ruben Carlo O. Asuncion said in a Viber message.
Meanwhile, Michael L. Ricafort, chief economist at Rizal Business Banking Corp., said bad weather affected many businesses, affecting borrowers’ ability to repay debts.
“This is essentially as a result of weather-related disruptions since July 2025, in view of the series of storms (and) flooding that reduced business days, sales and incomes of companies and other people, thereby reducing the flexibility to pay by some borrowers,” he said in a Viber message.
From late July to early August, tropical storms Crising, Dante and Emong, and the southwest monsoon brought heavy rains and flooding across the country.
Mr. Ricafort said the upper bad loan ratio in August partly reflected the impact of US President Donald J. Trump’s recent policies on the economy.
“That is on top of the slower global and native (economy) as a result of Trump’s higher tariffs, protectionist measures, and the resulting trade wars that reduced exports and global trade, investments, employment and other economic activities,” he added.
The US imposed a 19% tariff on Philippine goods starting Aug. 7.
Based on central bank data, overdue loans inched up by 0.8% to P693.085 billion in August from P687.588 billion in July and by 9.8% from P631.421 billion in August last 12 months.
This brought the overdue loan ratio to 4.41%, higher than the 4.36% in July but barely lower than the 4.42% last 12 months.
Restructured loans, however, dipped by 0.2% to P328.917 billion in August from P329.643 billion a month ago, but increased by 12.2% from P293.162 billion in August 2024.
This accounted for two.09% of the industry’s total loan portfolio, unchanged from July but higher than the two.05% seen a 12 months prior.
Meanwhile, banks’ loan loss reserves amounted to P519.293 billion, up by 1.4% from P512.061 billion in July and by 7.6% from P482.489 billion a 12 months earlier.
With this, the August loan loss reserve ratio was higher month on month at 3.31% from 3.25% in July but down from 3.37% the previous 12 months.
Lenders’ NPL coverage ratio, which gauges the allowance for potential losses as a result of bad loans, slipped to 94.4% in August from 95.63% in July. Nevertheless, it was above the 94.11% logged in August 2024.
“While some upward drift is feasible as loan portfolios mature, we expect asset quality to stay broadly manageable, supported by strong capital buffers and up to date monetary easing,” UnionBank’s Mr. Asuncion said.
Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said the bad loan ratio reflects sluggish economic growth, elevated borrowing costs, and lingering repayment challenges amongst consumers and small businesses.
“Unless these floodgate issues are resolved soon, growth challenges remain (and) NPLs may remain elevated,” he said in a Viber message, referring to the corruption scandal involving government flood control projects.
On Thursday, the central bank delivered a surprise 25-basis-point (bp) cut, bringing the benchmark policy rate to a three-year low of 4.75%.
BSP Governor Eli M. Remolona, Jr. said the fourth straight cut this 12 months got here as recent corruption issues affected business sentiment and weakened the expansion outlook.
The Monetary Board has to date slashed borrowing costs by a cumulative 175 bps because it began its easing cycle in August 2024.
Mr. Remolona also left the door open for one more cut at their last policy-setting meeting this 12 months on Dec. 11 and possibly more next 12 months.