Moody’s Ratings has maintained its stable outlook for the Philippine banking sector, citing strong economic growth and expectations of lower interest rates that will support credit demand.
In its latest report, the credit rating agency highlighted that steady inflation and further monetary easing in 2025 will continue to drive lending activity and sustain loan quality.
Moody’s forecasts the Philippines’ real GDP to grow by 6% annually in both 2025 and 2026, making it one of Asia’s fastest-growing economies.
Inflation is expected to remain within the Bangko Sentral ng Pilipinas’ (BSP) target range of 2% to 4%, allowing for further rate cuts. These cuts are anticipated to stimulate consumption and investment, bolstering overall economic activity.
The agency also noted that the country’s consumption-driven economy will mitigate external risks, such as the impact of higher tariffs under the Trump administration.
Despite the anticipated rate cuts, Moody’s expects Philippine banks to maintain stable profitability. The agency pointed out that the weak transmission of monetary policy in the country will limit the decline in lending rates, which will help prevent significant compression of net interest margins.
The shift towards higher-yielding retail and SME loans, which have increased by 35% over the past two years, will further support bank profitability.
Moody’s anticipates that asset quality will remain stable, although risks will vary across institutions. The rapid growth of retail and SME loans raises concerns about loan seasoning, but the lower borrowing costs should help borrowers manage their debt.
Real estate exposure remains a key risk, as property loans accounted for about 20% of the banking system’s total loans as of December 2024. While non-performing commercial real estate loans remain manageable at 2.1%, persistent office vacancy rates continue to pose a challenge.
Moody’s also expects loans to large conglomerates to remain strong, though concentration risks remain. The agency noted that the rapid growth in retail and SME lending will add complexity to credit risk management.
Liquidity conditions are expected to remain stable as banks continue to be primarily deposit-funded. Recent cuts to the BSP’s reserve ratio requirement will provide additional liquidity, stimulating lending.
Moody’s also expects Philippine banks to maintain strong capital buffers, supported by internal capital generation and shareholder backing.
Credit growth is projected to reach 12% in 2025, with lower interest rates expected to further drive business activity. The Philippine government is also seen as highly likely to provide support to the banking sector in times of financial distress, with a low probability of a bail-in regime in the next 12 to 18 months.
