NON-PERFORMING loan ratio of Philippine banks improved to 3.08 percent in December 2025 from 3.32 percent in the previous month, a change that an economist partly attributed to sustained reductions in the central bank’s key policy rates.
The latest NPL ratio of domestic banks, based on Bangko Sentral ng Pilipinas (BSP) data, was the lowest since August 2020.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., attributed the lower NPL ratio, despite continued growth in bank lending, partly to the cumulative 200-basis-point reduction in the BSP’s key rates.
The reductions in the central bank’s key rates, implemented since August 2024, were intended to encourage economic activity and support domestic growth.
“(This might likely be) in view of the Christmas holiday spending, in terms of higher sales, incomes, bonuses, livelihood, all of which improved the ability of borrowers to pay their loans/debts,” Ricafort said in a report.
He said the improvement in credit risk management, which “is better aligned with global best practices, also led to slower growth in bad loans/NPLs, thereby also mathematically contributing to the lower/better NPL ratio.”
“Lower banks’ gross NPL ratio could signal improving asset quality, thereby could lead to higher net incomes/profitability, capital, total assets/resources, since banks are among the most profitable businesses/industries in the country for many years,” he added. / PNA