Philippine commercial banks' non-performing loans edged down to 3.52 percent of total loans in December, the lowest since June 1997, partly due to the expansion in the industry's loan portfolio, the central bank said on Friday.

Non-performing loans were at 3.75 percent in November.

The improvement in bank's soured loan ratio was brought about by a 1.33 percent expansion in commercial banks' total loans and a 4.84 percent drop in bad loans, the central bank said in a statement.

Monetary authorities have said they expect a slight expansion in bad loans this year as the deepening global economic crisis hits the local economy, but the increase would not reach levels seen after the Asian financial crisis.

Bad loans were at 3.37 percent of total loan portfolio in June 1997 shortly before the Asian financial crisis erupted and sent the ratio to a peak of 18.81 percent in end-October 2001 following defaults by corporate borrowers.