THE nonperforming loan (NPL) ratio of Philippine banks improved further, hitting a five-year low in December 2025, according to data released by the Bangko Sentral ng Pilipinas (BSP).
The NPL ratio — a credit risk indicator which covers past-due loans where the principal or interest is unpaid for 90 days or more after the due date — narrowed to 3.08 percent from November’s 3.32 percent and December 2024’s 3.27 percent.
It was the lowest bad-loan ratio since the 2.84 percent in August 2020.
Soured loans declined to P526.68 billion in December from P537.02 billion a month earlier, though higher than the P500.43 billion last year.
Past due loans, meanwhile, dropped to P674.38 billion from P695.98 billion in November, but was higher than P605.22 billion a year ago. These accounted for 3.94 percent of total loans, down from 4.24 percent in November and 3.95 percent last year.
Restructured loans amounted to P336.46 billion from P331.28 billion, comprising 1.97 percent — down from November’s 2.02 percent — of banks’ gross loan portfolio.
A year earlier, restructured loans were lower at P310.44 billion.
Lenders’ loan loss reserves climbed to P510.54 billion, equivalent to 2.98 percent of total loans. This was, however, lower than the 3.14 percent a year earlier.
The NPL coverage ratio — a measure of banks’ allowance for potential losses — was slightly higher at 96.93 percent from 96.04 a year earlier.
Sought for comment, auditing firm Reyes Tacandong & Co. senior adviser Jonathan Ravelas said the decline in the NPL ratio “reflects both real improvement and caution.”
He explained: “Asset quality has genuinely strengthened as borrowers’ repayment capacity improved and banks tightened underwriting. At the same time, slower loan growth also played a role— fewer new loans mean fewer potential problem accounts entering the system. So this is a healthy signal, but partly supported by cautious lending. The real test is whether NPLs stay low once credit growth accelerates again.”