Fitch predicts lower NPL ratio for PH banks by 2025

Fitch Ratings has forecasted a significant improvement in the non-performing loans (NPL) ratio of Philippine banks by 2025, citing robust economic growth and lower interest rates as key factors driving the recovery.

In its latest report, Fitch noted that the Philippines, along with India and Vietnam, is poised to see the largest near-term improvements in NPL ratios among Asia-Pacific (APAC) markets. "The largest near-term improvements are likely to be in India, Vietnam, and the Philippines, mostly driven by robust economic expansion and loan growth, with the Philippines also benefiting from lower interest rates," the report stated.

As of October 2023, data from the Bangko Sentral ng Pilipinas (BSP) indicated that the NPL ratio of Philippine banks stood at 3.6 percent of total loans. This trend aligns with Fitch’s optimistic projection, which also highlights double-digit loan growth in the Philippines as a contributing factor.

"Philippine banks are expected to maintain a high risk appetite, particularly for unsecured retail loans and small and medium enterprises (SMEs), driven by expanding financial inclusion and robust competition," Fitch noted.

According to the BSP, bank lending grew by 10.6 percent in October 2023, reflecting strong demand for credit in a growing economy. Fitch anticipates this momentum to continue, with the Philippines, India, and Vietnam outpacing most APAC markets in loan growth.

The report emphasized that the improvement in NPL ratios, coupled with sustained loan growth, will bolster the Philippine banking sector’s stability and resilience as it supports the broader economic recovery.