MANILA — The non-performing loan (NPL) ratio of Philippine banks improved to 3.08 percent in December 2025, down from 3.32 percent a month earlier, the lowest level since August 2020, Bangko Sentral ng Pilipinas (BSP) data showed.

Rizal Commercial Banking Corporation chief economist Michael Ricafort attributed the decline partly to the central bank’s sustained reduction of key rates, which have been lowered by a total of 200 basis points since August 2024 to encourage economic activity and bolster domestic growth.

“(This might likely be) in view of the Christmas holiday spending, in terms of higher sales, incomes, bonuses, livelihood, all of which improved the ability of borrowers to pay their loans/debts,” Ricafort said in a report.

He also cited improvements in credit risk management aligned with global best practices as contributing to slower growth in bad loans, which helped lower the NPL ratio.

“Lower banks’ gross NPL ratio could signal improving asset quality, thereby could lead to higher net incomes/profitability, capital, total assets/resources, since banks are among the most profitable businesses/industries in the country for many years,” Ricafort added.