Philippine banks saw their bad-loan ratio edge lower in November last year as sustained cycle of monetary easing and reduced reserve requirements bolstered the ability of borrowers to service their debt.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that the banking industry’s non-performing loan ratio improved to 3.32 percent from 3.33 percent in October.

The end-November figure remains significantly below the 2025 peak of 3.5 percent and the 3.54 percent recorded in the same month a year earlier.

While the percentage of sour loans moderated, the nominal value of non-performing assets rose 1.5 percent month-on-month to ₱544.9 billion. On an annual basis, bad loans increased 4.7 percent from ₱520.5 billion.

The incremental improvement in asset quality comes as the central bank continues to unwind its most aggressive tightening cycle in two decades.

The BSP has delivered a cumulative 200 basis points in interest rate cuts since August 2024, bringing the benchmark rate down to 4.5 percent from a peak of 6.5 percent. These maneuvers have been complemented by aggressive reductions in the reserve requirement ratio for major lenders, which has been slashed by 4.5 percentage points since October 2024.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the easing in the NPL ratio is largely the byproduct of these improved monetary conditions.

The reduction in the reserve requirement alone has injected more than ₱700 billion into the financial system, effectively lowering intermediation costs and expanding the pool of loanable funds.

According to Ricafort, the combination of lower borrowing costs and increased liquidity has directly enhanced the repayment capacity of diverse borrower groups.

The underlying growth in the industry's balance sheet has also provided a buffer. Total loans jumped 11.5 percent year-on-year to ₱16.41 trillion, from ₱14.72 trillion in November 2024.

On a monthly basis, the loan book expanded by 1.9 percent. Past-due loans, which include all accounts where payments have been missed but have not yet reached the 90-day threshold to be classified as NPLs, rose to ₱696 billion.

Despite that nominal increase, the past-due ratio fell to 4.24 percent from 4.27 percent in October, reflecting a broader trend of stabilization across the Philippine financial sector as the economy adjusts to a lower interest rate environment.