Philippine Banks' Non-Performing Loan Ratio Declines to 3.08% in December 2025
The non-performing loan (NPL) ratio of Philippine banks showed significant improvement, dropping to 3.08 percent in December 2025 from 3.32 percent in the previous month. This marks the lowest level since August 2020, according to data released by the Bangko Sentral ng Pilipinas (BSP).
Economist Attributes Improvement to Central Bank Rate Reductions
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., highlighted that the lower NPL ratio occurred despite continued growth in bank lending. He partly attributed this positive trend to the cumulative 200-basis-point reduction in the BSP's key policy rates, which have been implemented since August 2024. These rate cuts were designed to stimulate economic activity and bolster domestic growth.
Ricafort noted that the timing of the improvement coincided with the Christmas holiday season, which typically boosts consumer spending. "This might likely be in view of the Christmas holiday spending, in terms of higher sales, incomes, bonuses, and livelihood, all of which improved the ability of borrowers to pay their loans and debts," he explained in a report.
Enhanced Credit Risk Management Contributes to Lower NPLs
Beyond seasonal factors, Ricafort emphasized that improvements in credit risk management have played a crucial role. He stated that these enhancements, which are better aligned with global best practices, have led to slower growth in bad loans or NPLs. This, in turn, has mathematically contributed to the lower and better NPL ratio observed in the data.
Ricafort further elaborated on the broader implications of this trend. "Lower banks' gross NPL ratio could signal improving asset quality, thereby potentially leading to higher net incomes, profitability, capital, and total assets or resources," he said. He added that banks have consistently been among the most profitable businesses and industries in the Philippines for many years, underscoring the importance of maintaining strong financial health.
The sustained reduction in NPLs reflects a resilient banking sector that is effectively navigating economic challenges while supporting broader economic recovery efforts through strategic monetary policies and improved risk management frameworks.
