Manila: Non-performing loan (NPL) ratio of Philippine banks posted an improvement to 3.08 percent in December 2025 from the previous month's 3.32 percent, which an economist traced partly to the sustained reduction in central bank's key rates. The latest NPL ratio of domestic banks, based on Bangko Sentral ng Pilipinas (BSP) data, is the lowest since August 2020.

According to Philippines News Agency, Rizal Commercial Banking Corporation chief economist Michael Ricafort attributed the lower NPLs amid the continued rise of bank loans partly to the total of 200 basis points reduction in the BSP's key rates. The reduction in the central bank's key rates, initiated since August 2024, aims to encourage more economic activity and bolster domestic economic growth.

Ricafort highlighted that the improvement might be linked to Christmas holiday spending, resulting in higher sales, incomes, bonuses, and livelihood, which enhanced the ability of borrowers to repay their loans. He also noted that the enhancement in credit risk management, aligning better with global best practices, led to slower growth in bad loans, contributing to the lower NPL ratio.

Lower banks' gross NPL ratio could signal improving asset quality, potentially leading to higher net incomes, profitability, capital, and total assets, as banks remain among the most profitable industries in the country, Ricafort added.