By Katherine K. Chan, A reporter
PHILIPPINE lenders’ non-performing loan (NPL) ratio worsened to an eight-month high in April as borrowers faced tougher economic conditions amid the Middle East war, the latest Bangko Sentral ng Pilipinas (BSP) data showed.
The banking industry’s total NPL rose to 3.37% from 3.29% in March but fell slightly from 3.39% a year ago, based on data from the central bank’s database.
April had the highest mortgage rate since 3.5% in August last year.
This happened as loans reached P579.885 billion for the month, up 11.68% year-on-year from R519.234 billion. It also increased by about 2% from P568.554 billion in March.
Loans are considered non-performing if they are not paid for at least 90 days after the due date and are considered risky assets as borrowers are unlikely to repay.
Jonathan L. Ravelas, senior counsel at Reyes Tacandong & Co., said the increase in non-performing loans is “not a problem,” but is likely a sign that the war in the Middle East is tightening financial conditions for households and businesses in the country.
“The increase in NPLs to 3.37% tells us that high inflation and global uncertainty – especially high oil prices related to Middle East tensions – are starting to hurt households and businesses,” he said in a Viber message. “It’s an early warning sign of tight cash flow, not a problem.”
The high NPL ratio also means that borrowers’ repayment capacity is now being challenged by rapid inflation, high operating costs and a sluggish economy, said Philippine Institute for Development Studies senior research fellow John Paolo R. Rivera.
“The conflict in the Middle East may not be the only driver but it has had an impact due to higher fuel prices, transportation costs and broader economic uncertainty,” he added.
In April, inflation rose to a three-year high of 7.2% as higher oil costs during the Middle East war continued to pass through to food and service prices. This is faster than 4.1% in March and 1.4% in the same month last year.
Meanwhile, BSP data showed that the sector’s loan portfolio totaled P17.198 trillion at the end of April, down 0.38% from P17.263 trillion last month but up 12.12% from P15.339 trillion last year.
Bank loans increased by 3.72% to P763.591 billion in April from P736.181 billion in March. Year-on-year, it jumped 16.89% from P653.259 billion.
This brought the latest fixed rate loan to 4.44% from 4.26% in the previous month and in April 2025.
Restructured loans increased by 1.34% for the month to P342.924 billion from P338.39 billion. It also grew by 10.03% from P311.665 billion in April last year.
These loans made up 1.99% of the sector’s total loan book in April, exceeding the 1.96% average in March but down from 2.03% in the same month last year.
Meanwhile, loans to lenders reached P526.849 billion during the month, up 1.42% from P519.46 billion last month and 6.69% year-on-year from P493.793 billion.
With this, the loan loss ratio for domestic banks stood at 3.06%, higher than 3.01% in March but down from 3.22% in the same period last year.
On the other hand, the NPL lender coverage ratio, which measures the potential allowance for bad loans, fell to 90.85% in April from 91.37% last month and 95.1% a year ago.
Mr. Rivera said prolonged conflict in the Middle East could translate into continued stress on banks and borrowers.
“If the conflict drags on and keeps oil prices rising, NPL rates may remain under pressure in the coming months,” he said. “Inflation is reducing the purchasing power of households, while businesses are facing tighter margins and weak demand, making debt servicing very different.fireligion.”
Meanwhile, Mr. Ravelas said the banks’ bad loan ratio could range from 3.3%-3.8% in the coming months, although reputable banks may be able to withstand such high NPL levels given their strong capital and buffers.
“At current levels, NPLs are above the ideal 2%-3% range but still manageable,” he said. “The key is to watch the trend – a gradual increase is tolerable, but any sharp increase can be a big concern.”
