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Banks (Finance)

Philippine Banks' Bad Loans Ratio Hits Three-Month Low Amid Lower Interest Rates

Strategic Insights

— 2 min read

The non-performing loans (NPLs) ratio of Philippine banks reached a three-month low in June 2025, driven by lower interest rates, according to the Bangko Sentral ng Pilipinas (BSP). The NPL ratio stood at 3.34 percent, the lowest since March 2025 when it was at 3.3 percent. The recent easing of the NPL ratio is attributed to lower Fed and BSP policy rates since 2024, which reduced interest rate costs and improved the ability to pay for some borrowers. This improvement in the NPL ratio could continue if loans continue to grow and firms are not significantly affected by trade wars and tariffs.

Key Takeaways:

  • The NPL ratio of Philippine banks was at a three-month low in June 2025, reaching 3.34 percent, the lowest since March 2025.
  • The NPL ratio was lower than the 3.38 percent posted in May 2025 but remained higher than the 3.21 percent posted in the same period last year.
  • The recent easing of the NPL ratio is attributed to lower Fed and BSP policy rates since 2024, which reduced interest rate costs and improved the ability to pay for some borrowers.
  • BSP Governor Eli M. Remolona Jr. said a reduction in key policy rates remains 'on the table' despite the recent increase in the country's core inflation rate.
  • The Monetary Board has three more meetings left in 2025, and industry expectations are pointing toward another policy rate reduction in the next meeting slated for August 28.
  • Rizal Commercial Banking Corporation Chief Economist Michael L. Ricafort said the June NPL ratio is considered among the lowest in nearly 5 years or since August 2020.
  • Ricafort noted that the improvement in the NPL ratio could continue if loans continue to grow and firms are not significantly affected by trade wars and tariffs.

Statistics:

  • NPL ratio: 3.34 percent in June 2025 (lowest since March 2025)
  • NPL ratio: 3.3 percent in March 2025
  • NPL ratio: 3.38 percent in May 2025
  • NPL ratio: 3.21 percent in the same period last year
  • Lower Fed and BSP policy rates reduced interest rate costs by 2024
  • BSP policy rates: 6.25 percent in August 2024, 6 percent in October 2024, and 5.75 percent in December 2025
  • Monetary Board reduced policy rates by 25 bps to 5.5 percent in April 2025 and by another 25 bps to 5.25 percent in June 2025
  • Industry expectations: another policy rate reduction in the next meeting slated for August 28
  • Core inflation: 2.3 percent in July (faster than the 2.2 percent recorded in June but slower than the 2.9 percent recorded a year ago)
  • Headline inflation: expected to average 2 percent this year

Sources:

  • "July core inflation worries analysts" by Business Mirror (https://businessmirror.com.ph/2025/08/06/july-core-inflation-worries-analysts/)
  • BSP data and press releases
  • Interviews with Rizal Commercial Banking Corporation Chief Economist Michael L. Ricafort and BSP Governor Eli M. Remolona Jr.

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