Philippine Banks Report Rising Non-Performing Loans Amid Economic Challenges

The Bangko Sentral ng Pilipinas (BSP) has reported that the non-performing loan (NPL) ratio of Philippine banks reached 3.44 percent in May 2026, marking the highest level in nine months. This increase from 3.37 percent in April indicates ongoing challenges in the banking sector, with bad loans rising to approximately ₱604.41 billion ($10.8 billion), up from ₱579.89 billion ($10.4 billion) in the previous month and significantly higher than the ₱527.45 billion ($9.4 billion) recorded a year earlier.

According to the BSP, NPLs are defined as loans that have remained unpaid for 90 days or more, reflecting a considerable credit risk. The data also showed that past due loans slightly declined to ₱761.87 billion ($13.6 billion) from ₱763.59 billion ($13.7 billion) in April but increased from ₱659 billion ($11.8 billion) a year ago. Meanwhile, restructured loans rose to ₱348.02 billion ($6.2 billion) from ₱342.92 billion ($6.1 billion) in the previous month.

“The trend warrants monitoring, current conditions do not yet point to a material deterioration in the banking sector’s overall asset quality.”Ruben Carlo Asuncion, chief economist, Union Bank Philippines

Loan loss reserves, which are critical for banks to manage potential defaults, increased to ₱534.76 billion ($9.5 billion), representing 3.06 percent of total loans. This figure is lower than the 3.19 percent seen a year prior. The NPL coverage ratio, an indicator of banks' preparedness for potential losses, fell to 88.92 percent from 94.57 percent in May 2025, the lowest since March 2022.

“The conflict led to higher prices/inflation, higher interest rates that led to higher financing costs, slower global and local economic growth.”Michael Ricafort, chief economist, Rizal Commercial Banking Corp.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., attributed the rise in NPLs to various economic pressures, particularly the impact of geopolitical tensions, such as the ongoing conflict in the Middle East. He noted that these factors have contributed to higher inflation and interest rates, which in turn have elevated financing costs and hampered economic growth, thereby reducing borrowers' ability to repay loans.

Conversely, Ruben Carlo Asuncion, chief economist at Union Bank Philippines, suggested that while the increase in NPLs and the decline in coverage ratios are concerning, they may reflect a normalization in banks' provisioning behaviors rather than a significant deterioration in asset quality. He emphasized that Philippine banks continue to benefit from strong capital and profitability, stating, “While the trend warrants monitoring, current conditions do not yet point to a material deterioration in the banking sector’s overall asset quality.”