THE PHILIPPINE BANKING system stays stable as its regular profitability, funding and liquidity, in addition to strong capital position may help temper potential asset quality risks from the rise in retail loans and the economic fallout from an ongoing corruption probe, Moody’s Ratings said.
“We maintain a stable outlook for the Philippines’ (Baa2 stable) banking system, underpinned by a stable operating environment and adequate loan-loss buffers,” Moody’s Rankings said in a report on Monday.
A stable outlook means the debt watcher’s assessment of rated local lenders will likely be unchanged over the subsequent 12 to 18 months.
Moody’s currently rates eight industrial banks within the country, namely, BDO Unibank, Inc., Metropolitan Bank and Trust Co., Bank of the Philippine Islands, China Banking Corp., Rizal Business Banking Corp., Philippine National Bank, Union Bank of the Philippines, and Security Bank Corp.
These lenders hold about 66% of the sector’s total assets as of end-September 2025.
Of the eight, only Security Bank has a negative outlook from Moody’s.
The debt watcher noted that weak investor sentiment arising from the flood control scandal poses risks to the industry, particularly in potential payment delays in the development sector.
This, alongside higher credit costs, could taint the industry’s asset quality, Moody’s said.
Late last yr, several lawmakers, Public Works officials and personal contractors were embroiled in corruption allegations tied to anomalous flood control projects across the country.
“Unsecured products accounted for many of the growth in retail loans, so credit costs will likely increase as this portfolio seasons,” Moody’s said.
“At the identical time, the continued probe is more likely to delay payments to the development sector and related industries, which can affect the repayment capability of borrowers in these areas.”
Nevertheless, Moody’s said the anticipated economic recovery and further easing by the Bangko Sentral ng Pilipinas (BSP) may offer some relief for Philippine banks.
For 2026, Moody’s sees the country’s gross domestic product (GDP) growing by 5.5% on the back of strong household consumption, sustained remittance inflows from overseas Filipinos, improving public investments and ongoing reforms.
If realized, this yr’s GDP growth would pick up from the five-year low of 4.4% in 2025 and would settle on the midpoint of the federal government’s 5%-6% goal for the yr.
The BSP has thus far lowered borrowing costs by a complete of 200 basis points (bps) since August 2024, bringing the important thing policy rate to 4.5%.
In 2025 alone, it delivered five straight 25-bp cuts, with the last two prompted by dim consumer and business sentiment as a result of the flood control fallout.
BSP Governor Eli M. Remolona, Jr. has left the door open for an additional cut at their Feb. 19 meeting if the fourth-quarter growth slowdown proves to be demand-driven.
“Nonetheless, a more accommodative monetary policy stance will help support private consumption and ease the debt servicing costs of some borrowers,” Moody’s said.
Moody’s likewise expects Philippine banks to keep up strong capitalization as internal capital generation matches capital consumption.
Nevertheless, it sees lending growth slowing to between 8% and 9% over the subsequent 12 to 18 months.
Bank lending has posted double-digit expansion for nearly two years, since May 2024, based on BSP data.
Meanwhile, Moody’s said the industry could proceed to rake in profits as wider net interest margins as a result of rising higher-yielding retail loans offset the impact of upper provisions and lower rates of interest.
Local banks’ funding and liquidity are also more likely to delay this yr, the debt watcher noted.
“Banks maintain healthy loan-to-deposit ratios, indicating sufficient liquidity to support credit demand,” Moody’s said. “While the rise in long-tenor project financing introduces funding risks from maturity transformation, Philippine banks have consistently maintained regular net stable funding ratios, a trend we expect will proceed.”
“Strong liquidity positions, primarily in money and government securities, may even remain stable and help address short-term funding gaps,” it added. — Katherine K. Chan