Union Bank of the Philippines remains in investment-grade territory, but Moody’s is closely watching credit risks from its rising exposure to unsecured retail lending.
Moody’s affirmed the bank’s Baa3 long-term deposit and issuer ratings with a stable outlook, citing strong capital and liquidity that continue to support its credit profile despite weaker asset quality and profitability pressures.
“The affirmation of UBP’s ratings and BCA reflects the bank’s strong capital and liquidity, which provide buffers against its weaker-than-peers asset quality,” Moody’s said.
The rating agency flagged elevated problem loans, higher credit costs, and thin provisioning coverage. Profitability remains under strain as returns have yet to fully benefit from a shift toward higher-yielding but riskier segments.
Retail loans accounted for about 60% of UnionBank’s portfolio as of end-2025, with unsecured exposures making up roughly 40%.
“We view this as a relative weakness as this asset class has underperformed compared with corporate loans,” Moody’s said.
Expansion into lower-income segments through CitySavings Bank and UnionDigital Bank could further increase exposure to inflation and weaker household finances.
“We expect the bank, on a consolidated basis, to be more exposed to risks arising from shrinking financial buffers of retail borrowers and higher inflation,” the agency added.
Moody’s expects UnionBank’s problem loan ratio to remain elevated at about 6% to 7%, with risks from both retail and corporate books. Coverage stood at 68%.
Return on assets fell to 0.9% in 2025 from 1.1% a year earlier, even as net interest margins improved. Credit costs rose to 3.9% from 3.7% and are expected to remain among the highest in the sector.
“UBP’s credit costs are expected to remain the highest among its domestic rated peers given its large share of unsecured loans,” Moody’s said.
Capital buffers remain strong. Tangible common equity stood at 16.4% of risk-weighted assets, while liquidity coverage was 260%. Capital ratios are expected to hold at 15% to 16% this year.
Moody’s said the stable outlook assumes contained macro shocks but warned the bank could be vulnerable under more adverse conditions.
An upgrade would depend on sustained improvement in asset quality and profitability, while deterioration in loan performance or capital could trigger a downgrade.
UnionBank had total assets of P1.2 trillion as of end-2025.
