The "bad loan" or non-performing loans (NPL) ratio of Philippine banks is expected to improve in 2025 amid a robust economic expansion and lower interest rates.

"We expect NPL ratio improvements across five out of 14 larger APAC (Asia Pacific) markets in 2025 before rising to nine in 2026," Fitch Ratings said in a recent report.

"The largest near-term improvements are likely to be in India, Vietnam and the Philippines, mostly driven by robust economic expansion and loan growth, with the Philippines also benefitting from lower interest rates."

Latest data from the Bangko Sentral ng Pilipinas showed that the proportion of NPLs of Philippine banks to their total loans settled at 3.6 percent as of end-October this year.

Fitch Ratings, meanwhile, also project a double-digit loan growth in the Philippines, India, and Vietnam.

"We expect banks in India, the Philippines and Vietnam to have the highest risk appetite over 2025-2026, given robust economic growth, competition and expanding financial inclusion, which has motivated banks to boost loan growth and move down the credit curve into riskier loans," it said.

"We expect double-digit loan growth in these markets compared with single-digit growth in most other APAC markets," Fitch Ratings added.

Fitch Ratings said banks in the Philippines and India show a stronger appetite for unsecured retail loans and small and medium enterprises.

BSP data showed that bank lending recorded a double-digit in October this year, expanding by 10.6 percent.