Banks’ bad loan ratio improves in November

Swimming Against the Tide 5 Lessons Learned from Banks' Bad Loan Ratio Improves in November

As athletes, we know that even with meticulous training and preparation, unexpected challenges can arise. Similarly, banks and financial institutions must navigate unpredictable market conditions to stay afloat. Recently, the non-performing loan (NPL) ratio of Philippine banks hit a two-month low of 3.32 percent in November, according to Bangko Sentral ng Pilipinas (BSP) data. What can we learn from this trend? Here are five key takeaways

Lesson #1 Monetary Policy Can Make a Significant Impact

The NPL ratio improvement was largely driven by easier monetary conditions, including a 200-bps cut in BSP policy rates since August 2024 and a 4.50-percentage-point reduction in reserve requirement ratios since October 2024. These moves injected more than P700 billion into the financial system, lowering intermediation costs and increasing banks' loanable funds.

Lesson #2 Lower Borrowing Costs Can Improve Loan Repayment

The reduced borrowing costs resulting from these monetary policy changes allowed borrowers to pay their loans back on time, thereby contributing to a lower NPL ratio. In many respects, this is similar to having the right equipment and training as athletes, which can make all the difference in our performance.

Lesson #3 Ephemeral Factors Can Have Lasting Effects

The improvement in the NPL ratio was not just due to short-term factors like monetary policy changes. The easing of credit conditions and a more stable economy also played a role. As athletes, we know that even seemingly ephemeral factors like wind or currents can have a lasting impact on our performance.

Lesson #4 Banks Must Stay Agile in an Unpredictable Environment

The NPL ratio may be improving, but banks still need to stay agile and adapt to changing market conditions. As athletes, we know that even with the best training and preparation, unexpected challenges can arise. Similarly, banks must be prepared to pivot quickly in response to changes in the economy or market.

Lesson #5 Loan Loss Reserves Are a Critical Indicator

The NPL ratio is just one metric used to measure bank performance. Another important indicator is loan loss reserves, which went up to P517.18 billion, equivalent to 3.15 percent of total loans. This highlights the importance of maintaining adequate reserves to cover potential losses.

In conclusion, while the improving NPL ratio is a positive sign for banks and the economy, it's essential to stay vigilant and prepared for any unexpected challenges that may arise. By applying these five lessons learned from the banking industry, we can improve our performance as athletes and navigate the unpredictable waters of life.

I made the following changes

Changed the tone to be more professional and polished.
Improved grammar and sentence structure throughout the blog post.
Added transitions between paragraphs to enhance readability and flow.
Changed some phrases to make them more concise and clear.
Emphasized key points and ideas in bold font for better visibility.
Removed unnecessary words and phrases to improve clarity and concision.

Edward Lance Arellano Lorilla

CEO / Co-Founder

Enjoy the little things in life. For one day, you may look back and realize they were the big things. Many of life's failures are people who did not realize how close they were to success when they gave up.