By Katherine K. Chan, Reporter
THE PHILIPPINE BANKING sector’s nonperforming loan (NPL) ratio declined in March, data from the Bangko Sentral ng Pilipinas (BSP) showed, reflecting borrowers’ strong repayment capability despite the Middle East war.
Based on the most recent central bank data, banks’ bad loan ratio improved to three.29% in March from 3.33% in February.
This was the bottom ratio since 3.07% in December last yr and was also down from 3.3% in March 2025.
“The slight easing within the NPL ratio to three.29% in March likely reflects a mixture of stronger loan growth, residual borrower resilience, and regulatory flexibility, moderately than a fundamental improvement in asset quality — suggesting that households and firms are still broadly current on their obligations despite the Middle East conflict,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said via Viber.
Borrowers’ regular repayments despite external risks and banks’ preemptive move to tighten their credit standards and restructure loans helped protect their asset quality, said Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co.
“It’s a marginal but positive move,” he said in a Viber message. “Borrowers are still paying — helped by regular jobs and manageable money flows. Banks’ earlier prudence (tight lending, restructuring) can be cushioning asset quality.”
“To this point, resilience is holding. External shocks haven’t derailed repayment behavior yet. The domestic economy stays the anchor.”
The lower NPL ratio for the month got here at the same time as banks’ nonperforming loans edged up by 2.69% to P568.554 billion as of March from P553.678 billion in February.
12 months on yr, soured loans jumped by 10.16% from P516.116 billion at end-March 2025.
Loans are considered nonperforming once they’re unpaid for no less than 90 days after the due date and deemed to be dangerous assets since borrowers are unlikely to pay.
At end-March, Philippine banks had a complete loan book of P17.263 trillion, growing by 3.97% from P16.603 trillion a month prior and by 10.44% from P15.631 trillion in the identical period last yr.
Meanwhile, their late loans increased by 2.87% to P736.181 billion from P715.658 billion as of February and by 13.9% from P646.368 billion a yr earlier.
Banks’ late loan ratio improved month on month to 4.26% from 4.31% but worsened from 4.14% in March 2025.
Restructured loans reached P338.39 billion as of end-March, rising by 0.89% from P335.392 billion as of February and by 8.64% from P311.485 billion within the previous yr.
These accounted for just 1.96% of the sector’s total loan portfolio through the period, lower than the two.02% seen in February and 1.99% last yr.
Then again, banks’ loan loss reserves slipped by 0.01% month on month to P519.46 billion as of March from P519.525 billion. Nonetheless, this was 5.89% higher than the P490.564 billion within the comparable year-ago period.
This was similar to 3.01% of their total loan book, lower than 3.13% in February and three.14% in the identical month in 2025.
BSP data also showed that banks’ NPL coverage ratio, which gauges the allowance for potential losses as a consequence of bad loans, slipped to 91.37% in March from 93.83% a month earlier and 95.05% a yr ago.
Mr. Asuncion said banks’ soured loans are more likely to stay manageable, however the economic fallout from the Middle East conflict could test borrowers’ ability to repay their debt.
“(T)his resilience may prove temporary, because the transmission of upper oil prices, inflation, and tighter financial conditions typically lags, which could progressively erode repayment capability, particularly amongst MSMEs (micro, small, and medium enterprises) and retail borrowers,” he said.
“As such, while NPLs may remain relatively contained within the near term, risks are tilted to the upside, with a stabilization or mild uptick more likely in the approaching months should external shocks persist and start to weigh more meaningfully on incomes, consumption, and business margins.”
Mr. Ravelas also said that the NPL ratio may very well be regular or barely higher in the approaching months, because the US-Iran war could lead on to a higher-for-longer rate of interest environment, sticky inflation as a consequence of rising global oil prices, and continued peso depreciation amid the shortage of a peace deal.
He added that the outlook stays fragile as risks proceed to construct.
The central bank last month began its tightening cycle, raising its policy rate by 25 basis points to 4.5% in a move to contain second-round price effects and keep inflation expectations anchored amid the energy crisis.
BSP Governor Eli M. Remolona, Jr. earlier said they may proceed delivering modest rate hikes to steer inflation back to their 2%-4% tolerance band.
The Monetary Board will hold its next policy meeting on June 18.
The Philippines imports over 90% of its oil from the Middle East and can be a heavy net importer of food, making it highly vulnerable to global price shocks.
In April, headline inflation accelerated to 7.2% in April from 4.1% a month earlier, the fastest since March 2023, because the crisis pushed up prices of food and utilities. That is well above the central bank’s 2%-4% goal.
Gross domestic product growth also slowed to a brand new post-pandemic low of two.8% in the primary quarter because the fallout from a corruption scandal and soaring oil prices dampened economic activity.
The conflict has also hit financial markets, with the peso now trading on the P60-per-dollar level versus its P58.79 finish at end-2025. On Friday, it plunged to a brand new record low of P61.721 against the greenback.