The non-performing loan (NPL) ratio of banks climbed to its highest level in nine months in May, according to a report by Philstar Biz. The ratio rose as bad debts continued to increase, reflecting a normalization of asset quality following the delayed impact of previously high interest rates on borrowers.
The uptick in NPLs signals that the elevated borrowing costs from earlier monetary policy tightening are still exerting pressure on borrowers' ability to repay loans. Banks have been setting aside higher provisions to cover potential losses, but the rising bad loan ratio could temper lending activity and weigh on profitability in the coming months.
Industry analysts expect the NPL ratio to stabilize as the central bank begins easing interest rates, but the pace of improvement will depend on the broader economic recovery and employment conditions. The banking sector remains well-capitalized, regulators have noted, but the persistence of elevated bad loans bears close monitoring.