THE PHILIPPINE economic system is facing mounting pressure as vulnerabilities tied to corporate debt and rising household debt amid the Middle East conflict proceed to check its resilience, the Financial Stability Coordination Council (FSCC) said.
In an announcement following its latest quarterly meeting held last week, the interagency council noted that the local banking sector stays strong, but risks are emerging from the prolonged war within the Middle East.
“Geopolitical risks remain a key source of uncertainty,” Bangko Sentral ng Pilipinas (BSP) Governor and FSCC Chair Eli M. Remolona, Jr. said on Monday.
The FSCC said the country may face higher oil prices, weaker market sentiment, tighter financial conditions, and slower economic growth if the Middle East conflict stays unresolved.
In its latest semestral report on the Philippine economic system, the BSP noted that the Middle East war is anticipated to have limited direct impact on domestic banks, with the brunt likely felt within the industry’s operating environment.
It is because the banking system ended 2025 with enough buffers to cushion the threats emerging from the energy crisis, it said.
Nonetheless, the war could still push borrowing costs up and result in higher household and company debt levels, the FSCC noted.
The FSCC said corporates, particularly those exposed to energy and interest rate-sensitive sectors, could face higher debt servicing costs and narrower profit margins as energy prices rise, and financial conditions tighten.
This, in accordance with the council, could weigh on banks’ asset quality.
“The Council also noted that rising bond yields could lead on to valuation losses on banks’ securities holdings,” it added. “If market pressures persist, this may increasingly affect capital buffers.”
Meanwhile, the FSCC told banks to maintain watch of household borrowers’ loan repayment capability amid the continuing crisis.
“We see pockets of vulnerability in energy- and interest rate-sensitive sectors and in valuation pressures from higher bond yields,” Mr. Remolona said. “Nonetheless, the economic system stays on solid footing. Banks have adequate capital
and liquidity buffers to absorb shocks and keep lending to households and firms.”
WEAKER PROFITABILITY
Then again, Moody’s Rankings said banks within the Asia-Pacific, particularly the Philippines, could see weaker profitability because of higher credit costs if the Strait of Hormuz stays disrupted into the third quarter.
“Sustained high energy prices because of a chronic Middle East conflict will impact Asia-Pacific (APAC) banks’ credit profiles, via their loan portfolios and financial channels,” it said in a separate report on Monday.
This is predicated on the credit rater’s recent central scenario wherein oil trade disruptions within the Strait of Hormuz hold until the third quarter of the yr, with global oil prices at a mean of $90-$110 per barrel.
Moody’s Rankings noted that the Philippines heavy reliance on imported oil from the Middle East makes its banking sector more exposed to vulnerabilities.
“Banks in South and Southeast Asia — especially Bangladesh, the Philippines, Vietnam, Thailand, Indonesia and India — face heightened challenges because of either their economies’ high energy import dependence from the Middle East, or thinner external buffers and oil reserves, or each,” it said.
The Philippines sources over 90% of its oil from the Middle East, which led domestic pump prices to shoot up when the war disrupted trade within the region.
This has also fueled inflation within the country, with the April headline print at an over three-year high of seven.2%, a situation Moody’s said is squeezing household budgets and increasing debt servicing pressures for consumers and small businesses.
“This may translate into increased but gradual credit strain on such loans,” the debt watcher added. “Nonetheless, given the absence of a macroeconomic hard landing, any deterioration in these portfolios is prone to be moderate.”
Moody’s also warned that Philippine banks where retail and SME loans account for a big portion of their portfolio could see a drop of their profits.
“Banks with large retail and SME (small and medium enterprises) books — akin to in Thailand, Indonesia and the Philippines — could see weaker profitability because of growing impairment charges,” Moody’s Rankings added. “Nonetheless, core preprovision earnings will remain broadly sufficient to soak up these costs without threatening solvency.”
Moody’s Rankings also noted that tighter labor conditions within the Middle East because of a chronic conflict risk dampening remittances flows to the Philippines.
“Remittance flows from Gulf Cooperation Council economies are one other risk channel for banks within the Philippines and Bangladesh, given the numerous share of remittances originating from nationals working within the Middle East,” it said. “A protracted conflict introduces uncertainty if labor conditions within the Middle East are significantly disrupted, resulting in softer remittance flows.”
Nonetheless, latest central bank data showed remittances from the region climbed by about 20% to $565.91 million in March from $471.836 million in February, which Moody’s said helped sustain bank deposits throughout the period.
“Nonetheless, any material slowdown in remittances would have a negative impact on banking system liquidity and native consumption,” it added.
Mr. Remolona said the FSCC, composed of the BSP, Department of Finance, Securities and Exchange Commission, Insurance Commission, and Philippine Deposit Insurance Corp., is closely monitoring developments surrounding the Middle East conflict and other external aspects to discover and address potential vulnerabilities within the local financial sector.
The council is likewise enforcing stricter oversight of nonbank financial institutions including quasi-banks, investment houses, nonstock savings and loan associations, pawnshops, and trust corporations.
“The Council can be working to enhance the way it monitors system-wide risks and interlinkages,” FSCC added. — Katherine K. Chan