The Philippine banking system’s gross non-performing loan (NPL) ratio dropped to its lowest level in three months, as robust growth in total bank lending helped offset a slower rise in soured loans.

The latest data from the Bangko Sentral ng Pilipinas (BSP) showed that the banking industry’s NPL ratio improved to 3.3 percent in March, down from a steady 3.38 percent in January and February—marking its best performance in three months.

It was also better than March 2024’s gross NPL ratio of 3.39 percent.

BSP data showed bad loans increased by 0.55 percent to ₱516.1 billion as of end-March from ₱513.3 billion in February. Year-on-year, soured loans hiked by 11.1 percent from ₱464.7 billion in March last year.

Loans become non-performing if unpaid for at least 90 days past due date, posing a credit risk as borrowers are less likely to repay.

Philippine banks’ total loan portfolio climbed by three percent to ₱15.63 trillion as of end-March from ₱15.17 trillion in the first two months. The end-March figure also jumped by 14.2 percent from the ₱13.69 trillion recorded at the end of March last year.

Past due loans increased by 1.4 percent to ₱646.4 billion as of March from ₱637.8 billion a month ago. It also increased by 9.9 percent from ₱588.4 billion in the previous year.

This brought the past due ratio to 4.14 percent, declining from 4.2 percent in February and 4.3 percent last year.

Past due loans are those where the borrower has failed to pay principal, interest, or any installment on time, including restructured loans and other financial assets.

Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort said that banks’ gross NPL ratio as of March was the “best in three months or since December 2024 and among the best in 4.5 years or since August 2020.”

He said the improvement was likely due to “double-digit growth in bank loans,” which “effectively” increased the total amount of loans. This made the percentage of bad loans look smaller, especially since bad loans did not expand as quickly.

Interest rates and borrowing costs have eased following a cumulative 100-basis point (bps) rate cut by the US Federal Reserve and the BSP since late 2024. These improved “some borrowers’ ability to pay their loans/debts and partly helped reduce the NPL ratio,” Ricafort said.

“Possible further rate cuts by the BSP, especially possible additional BSP rate cuts of 75 bps for the rest of 2025, would further reduce borrowing costs that would help improve the payment of debts, thereby would help the improving trend of banks’ NPL ratio,” he added.