Philippine banks see improved asset quality in June

The proportion of non-performing loans (NPLs) in the Philippine banking sector continued its downtrend in June, reflecting improving loan quality and stronger repayment capacity among borrowers.

Latest Bangko Sentral ng Pilipinas (BSP) data released Tuesday showed that the NPL ratio eased to 3.34 percent in June from 3.38 percent in May. In nominal terms, gross NPLs amounted to P530.29 billion.

Economists point to a combination of lending growth and favorable financing conditions as key factors in the improvement. Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort noted that bank loans expanded by over 12 percent in June, providing a larger base against which bad loans are measured.

“Lower Fed and BSP policy rates since the latter part of 2024 reduced interest rate costs and fundamentally improved the ability to pay by some borrowers, thereby partly supporting the recent easing of the NPL ratio,” Ricafort said.

He added that improved lending risk management standards aligned with global best practices have also strengthened banks’ asset quality.

The decline in NPLs comes as the banking sector continues to navigate a more stable macroeconomic environment, with inflation trending downward and monetary policy settings shifting toward a more accommodative stance. Financial institutions are expected to maintain prudent credit assessment while taking advantage of renewed demand for loans from both households and businesses.