The Bangko Sentral ng Pilipinas (BSP) reported that the local banking system’s gross non-performing loan (NPL) ratio increased in January, worsening from the one-year low in December last year. 

The latest data from the BSP showed that the banking industry’s gross NPL ratio increased to 3.38 percent in January from 3.27 percent in December 2024. 

BSP data showed bad loans increased by ₱12.5 billion to ₱512.8 billion as of end-January from ₱500.3 billion a month earlier.  Year-on-year, soured loans hiked by ₱52 billion from ₱460.8 billion.

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

The total loan portfolio of Philippine banks increased by a billion to ₱15.3 trillion as of end-January from ₱15.2 trillion at end-December. It jumped by ₱1.9 billion from ₱13.4 trillion in the same period in 2023.

Past due loans jumped by ₱27.9 billion to ₱633.1 billion as of January from ₱605.2 billion a month ago. It also climbed massively by ₱61.5 billion from ₱571.6 billion a year earlier.

This brought the past due ratio to 4.17 percent in January, higher than 3.95 percent in December but lower than 4.27 percent a year prior.

According to Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), although banks’ bad loans bloated in January, it remained among the lowest since December 2023. 

He argued that the slight rise in the NPL ratio could be due to the post-holiday sales and earnings slow after the peak spending season, impacting borrowers’ repayment capacity.

Ricafort noted that the January 2025 figure was also lower than the 3.44 percent recorded in January 2024 and well below the 4.51 percent peak in mid-2021, at the height of the pandemic. 

He further noted that the US Federal Reserve’s (Fed) 100 basis-point cut and the BSP’s 75 bps reduction since late 2024 have “helped increase loan demand with lower borrowing costs and also eased interest rate payments for borrowers.” This, he said, has also contributed to the “improving” trend in the NPL ratio.”

As per the economist, the most recent RRR cut, which is expected to inject P330 billion into the banking system, could boost loans and investments while lowering borrowing costs and potentially improving the NPL ratio.

Further Fed and BSP rate cuts could support loan demand and ease NPLs, but he warned that Trump’s protectionist policies may drive US inflation, limit rate cuts, and slow global trade and growth, posing risks to the business environment and NPL levels.