By Katherine K. Chan, A reporter
PHILIPPINE BANK sector non-performing loans (NPL) ratio fell in March, data from the Bangko Sentral ng Pilipinas (BSP) showed, indicating strong capacity to repay borrowers despite the war in the Middle East.
Based on the latest central bank data, banks' bad loan ratio improved to 3.29% in March from 3.33% in February.
This was the lowest rate since 3.07% in December last year and down from 3.3% in March 2025.
“The slight reduction in the NPL ratio to 3.29% in March likely reflects a mix of strong loan growth, borrower resilience, and flexibility, rather than a fundamental improvement in asset quality – suggesting that households and firms are still fully servicing their obligations despite the Middle East conflicts,” said Union Bank of the Philippines' O.
Slow repayments to borrowers despite external risks and the banks' first move to tighten their credit standards and refinance helped protect their asset quality, said Jonathan L. Ravelas, the chief executive. Senior consultant at Reyes Tacandong & Co.
“It's a small step but a good one,” he said in a Viber message. “Borrowers are still paying – helped by stable jobs and manageable cash flows. Banks' previous prudence (tight lending, restructuring) is also reducing asset quality.”
“So far, the stability is still there. External shocks have not affected the payment system. The domestic economy remains stagnant.”
The lower NPL ratio this month came as banks' non-performing loans increased by 2.69% to P568.554 billion as of March from P553.678 billion in February.
Year-on-year, outstanding loans jumped 10.16% from P516.116 billion at the end of March 2025.
Loans are considered non-performing if they are not paid for at least 90 days after the due date and are considered risky assets as borrowers are unlikely to repay.
At the end of March, Philippine banks had a total loan book of P17.263 trillion, an increase of 3.97% from P16.603 trillion last month and 10.44% from P15.631 trillion at the same time last year.
Meanwhile, their past 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 year ago.
The bank's outstanding loan ratio improved month-on-month to 4.26% from 4.31% but worsened from 4.14% in March 2025.
Scheduled loans reached P338.39 billion at the end of March, up 0.89% from P335.392 billion from February and 8.64% from P311.485 billion last year.
These made up 1.96% of the sector's total loans during this period, which is lower than the 2.02% seen in February and 1.99% last year.
On the other hand, the bank's loan losses decreased by 0.01% month-on-month to P519.46 billion as of March from P519.525 billion. However, this was 5.89% higher than the P490.564 billion in the comparable period last year.
This was equivalent to 3.01% of their total loan book, down from 3.13% in February and 3.14% in the same month in 2025.
BSP data also showed that banks' NPL performance ratio, which measures allowances for potential losses due to bad loans, dropped to 91.37% in March from 93.83% last month and 95.05% last year.
Mr. Asuncion said bank loans may remain under control, but the economic fallout from the Middle East conflict could test borrowers' ability to repay their loans.
“(T)he resilience may be short-lived, as the transmission of high oil prices, inflation, and generally tight financial conditions gradually diminishes, which may erode solvency, especially among MSMEs (micro, small and medium enterprises) and retail borrowers,” he said.
“Therefore, while NPLs may remain contained in the near term, risks are tilted to the upside, with stabilization or a slight increase more likely in the coming months if external shocks persist and begin to weigh meaningfully on revenues, spending, and business margins.”
Mr. Ravelas also said that the NPL ratio may be stable or slightly higher in the coming months, as the US-Iran war may lead to a situation of high interest rates for a long time, sticky inflation due to the increase in global oil prices, and the continued depreciation of the peso in the absence of a peace agreement.
He added that the outlook remains fragile as risks continue to build.
The central bank last month began its tightening cycle, raising its policy rate by 25 basis points to 4.5% in an effort to contain the second-round price effects and keep inflation expectations steady amid the energy crisis.
BSP Governor Eli M. Remolona, Jr. previously said that they may continue to deliver lower rate hikes to bring inflation back to their 2%-4% tolerance.
The Monetary Board will hold its next policy meeting on June 18.
The Philippines imports more than 90% of its oil from the Middle East and also has a heavy food import burden, making it highly vulnerable to global price shocks.
In April, inflation rose to 7.2% in April from 4.1% last month, the fastest since March 2023, as the crisis pushed up the prices of food and services. This is well above the bank's target of 2%-4%.
Gross domestic product growth also slowed to a new post-pandemic 2.8% in the first quarter as corruption scandals and rising oil prices weighed on the economy.
The conflict also affected financial markets, with the peso now trading at P60-per-dollar compared to its end of P58.79 at the end of 2025. On Friday, it fell to a new record low of P61.721 against the greenback.
