Manila: The proportion of non-performing loans (NPLs) of Philippine banks to their total loans slightly went up in July, data released by the Bangko Sentral ng Pilipinas (BSP) showed.

According to Philippines News Agency, the NPL ratio during the month settled at 3.40 percent, a slight increase from June's 3.34 percent. However, this was an improvement compared to the 3.58 percent NPL ratio recorded in July of the previous year. The gross amount of non-performing loans reached PHP535.4 billion.

Philippine Institute for Development Studies senior research fellow John Paolo Rivera commented on the uptick, noting that it reflects delayed effects of tighter credit conditions earlier in the year. This situation was compounded by a likely shift toward riskier lending as interest rates began to ease. Rivera explained, "While falling interest rates generally support repayment capacity, they may also encourage both banks and borrowers to take on more credit risk especially in consumer segments like BNPL and online lending, where delinquencies are rising."

Rivera also provided a forward-looking perspective, suggesting that NPLs might edge up slightly in the coming months. This potential increase could occur as banks adjust their portfolios toward consumer lending amid ongoing soft labor conditions and elevated household debt. He emphasized that stronger provisioning and improved credit risk tools could help mitigate systemic risks.