The Philippine banking sector is experiencing a rise in its gross non-performing loan (NPL) ratio, which climbed by nine basis points to 3.39% in April 2025, reversing the trend of improvement observed in March.

This change signals growing concerns within the sector as loan growth has decelerated and an increasing number of borrowers are defaulting on payments, as reported by the Bangko Sentral ng Pilipinas (BSP).

The banking industry's NPL ratio reached 3.3% at the end of the first quarter of 2025. Although this latest figure is an increase from that low, it remains below the gross NPL ratio of 3.45% recorded in April of the previous year.

The central bank's data indicated that bad loans in the sector rose by 0.6% to ₱519.2 billion at the end of April, compared to ₱516.1 billion in March.

Year-over-year, the number of soured loans increased by eight percent from ₱480.6 billion in April last year.

Loans are classified as non-performing if they remain unpaid for at least 90 days past the due date, introducing a credit risk as borrowers become less likely to repay these debts.

The total loan portfolio of Philippine banks also saw a decline of 1.9%, dropping to ₱15.34 trillion at the end of April from ₱15.63 trillion in the first quarter, although this figure represents a 10% increase from ₱13.94 trillion recorded in April the previous year.

Additionally, past due loans rose by 1.1% to ₱653.3 billion as of the end of April, up from ₱646.4 billion in March and representing a 5.7% increase compared to the same period last year.

This development has elevated the past due ratio to 4.26%, an increase from 4.14% in March but lower than last year's rate of 4.43%.

Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort attributed the slight increase in the NPL ratio to the slower growth in bank loans.

He noted that uncertainties stemming from trade policies, including higher tariffs imposed by the United States, could hinder the global economy, which may indirectly impact the Philippine economy, particularly affecting exporters and potentially leading to increased unemployment and reduced incomes.

In response to these challenges, there may be mitigating factors.

The recent one-percent cut in interest rates by the US Federal Reserve and the BSP could decrease borrowing costs and help borrowers make their repayments more manageable, particularly as inflation begins to moderate.

In a separate development, the Philippine government exceeded its borrowing target of ₱25 billion, raising ₱28.6 billion through short-term treasury bills on June 9, amidst declining interest rates and rising investor demand.

The Bureau of the Treasury received total bids of ₱98 billion, nearly four times the amount offered, with strong participation in various short-term debt securities.

The recent decline in inflation, reportedly dropping to a new 5.5-year low of 1.3% in May 2025, is expected to contribute to further interest rate reductions by the BSP and may help bolster the agricultural sector with a $500 million loan from the Asian Development Bank aimed at improving sustainable practices in agriculture through 2030.

These economic factors and loan conditions illustrate the evolving landscape of the Philippine banking sector amid broader economic uncertainties and the challenge of maintaining loan performance levels.