Philippine banks strong despite risks – BSP

MANILA, Philippines — Philippine banks remain capable of absorbing potential shocks even as Fitch Ratings warned that slower economic growth, high energy prices and rapid expansion in unsecured consumer lending could raise asset quality risks and weigh on bank earnings, according to the Bangko Sentral ng Pilipinas (BSP).

In a statement, the central bank said it “notes Fitch’s assessment and continues to closely monitor risks to credit quality, profitability, liquidity and capital adequacy.”

“Philippine banks remain well positioned to withstand potential shocks, supported by ample liquidity, adequate capital buffers and manageable asset quality,” the BSP said.

“While some pressure may emerge in specific borrower segments, risks remain contained, with no evidence of broad-based deterioration,” it added.

The statement came after Fitch said recent economic challenges in the Philippines are likely to drive higher credit impairments and lower bank profitability in the near term.

The debt watcher earlier revised its outlook for the Philippine banking sector this year to “deteriorating” from “neutral,” citing the impact of weaker economic momentum and the Middle East conflict-driven energy shock.

Fitch said the buildup in unsecured consumer loans could test banks’ asset quality, especially as households contend with slower income growth and still-elevated inflation.

Rather than a sharp jump in reported non-performing loans, the pressure is expected to show up mainly in higher write-offs and credit costs.

Fitch said this partly reflects regulatory relief measures, which may delay the recognition of some problem loans.

The debt watcher also trimmed its loan growth forecast to nine percent this year from 12 percent previously, slower than the 12-percent expansion recorded in 2025.

Fitch expects major banks to build up general provisions before the relief measures expire, backed by their strong pre-provision earnings.

The expected rise in provisions would weigh on profits, but Fitch said the impact should be manageable for large banks given their adequate loan-loss coverage and the anticipated recovery in net interest margins in 2027.

It also expects margins of the three biggest private banks to stay broadly stable over the next two years, supported by the BSP’s shift to rate hikes and the rise in government bond yields.

The BSP said it expects banks to maintain prudent credit standards, adequate provisioning, strong governance and sufficient capital and liquidity buffers.

“The BSP stands ready to take appropriate supervisory action, as needed, to preserve financial stability and protect the public,” the central bank said.