BSP sees improvement in bank loan quality as NPLs dip in May

The share of bad loans in the Philippine banking system posted a slight decline in May, suggesting early signs of relief for borrowers amid recent monetary policy easing.

Data from the Bangko Sentral ng Pilipinas (BSP) released Friday showed the non-performing loan (NPL) ratio of banks dropped to 3.38 percent in May, compared to 3.39 percent in April. The latest figure is also lower than the 3.57 percent recorded in the same month last year.

In absolute terms, the gross value of NPLs stood at PHP527.45 billion in May.

Reyes Tacandong & Co. Senior Adviser Jonathan Ravelas said the slight dip reflects improving credit conditions, as the BSP’s recent interest rate cuts begin to reduce borrowing costs and ease the financial burden on consumers and businesses.

“The slight easing in the NPL ratio to 3.38 percent reflects early signs of relief from the BSP’s recent rate cuts, which have lowered borrowing costs and helped ease debt servicing pressures,” Ravelas said.

He added that the ongoing decline in inflation—down to 1.4 percent in June—has also improved cash flow positions, supporting loan repayment capacity.

“While risks remain, especially in consumer lending, the overall outlook for NPLs is cautiously optimistic as monetary easing and stable prices continue to support credit quality,” Ravelas noted.

The BSP has trimmed key interest rates in recent months following a downtrend in inflation, which could help stimulate lending and strengthen repayment behavior across the financial system.