By the staff
Moody’s Ratings kept a stable outlook on the Philippine banking system but cautioned that credit costs will rise and loan quality may weaken as unsecured consumer loans mature and construction-related risks mount.
“We maintain a stable outlook for the Philippines’ banking system, underpinned by a stable operating environment and adequate loan-loss buffers,” Moody’s said. “However, asset quality is expected to deteriorate moderately due to unseasoned loan risks stemming from strong retail loan growth in recent years.”
Retail loans expanded 20% in the first nine months of 2025, far outpacing total loan growth of 8%, driven largely by unsecured credit cards and consumption loans.
Moody’s said defaults could increase as households face tighter budgets and job uncertainty.
The agency also flagged risks from delays in flood control projects, warning that weaker cash flows in construction-related industries could feed back into higher consumer loan defaults.
Philippine banks are entering 2026 from a position of strength despite mounting risks. Moody’s said capital levels should remain stable, with internal capital generation in line with capital consumption, while moderating loan growth is expected to ease capital requirements.
Profitability is expected to remain resilient despite higher provisions, supported by wider net interest margins and continued growth in higher-yielding retail loans. Some banks are also extending project finance and investment portfolio durations to support earnings in a lower-rate environment.
Moody’s projects the Philippine economy to grow 5.5% in 2026, up from 4.4% last year, driven by consumption, remittances and public investment.
It said government support for banks remains highly probable, underscoring authorities’ focus on financial stability.
The outlook reflects sector-wide credit fundamentals over the next 12 to 18 months and “does not constitute a rating action on individual banks,” Moody’s added.
