Fitch warns PH banks vs heightened risks

Underlying asset-quality risks continue to simmer in the Philippine banking sector, Fitch Ratings said, warning that the rapid expansion of unsecured consumer lending could leave banks more exposed as income growth slows and inflationary pressures from the Middle East conflict weigh on households.

In a note released on Thursday, Fitch cut its forecast for banking system loan growth to 9 percent in 2026 from 12 percent, citing heightened macroeconomic uncertainty, elevated long-term interest rates and weaker corporate appetite for capital spending. The ratings agency said banks were also likely to become more cautious in extending credit.

Fitch expects demand for unsecured consumer loans to soften while write-offs of impaired loans increase as higher inflation and a more challenging economic environment strain borrowers’ repayment capacity. Credit card receivables, in particular, pose “outsized credit risks” because they remain relatively unseasoned.

“This is evident from the higher impairment rates and credit costs associated with such loans,” Fitch said.

“Lending spreads on card receivables have been sufficiently high to cover credit costs and keep them profitable in recent years, but we believe banks have become more susceptible to economic shocks from the growing exposure to the risky asset class,” it added.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that nonperforming loans, or debts overdue by at least 90 days, accounted for 3.37 percent of banks’ total loan portfolio in April, the highest level since August 2025, when the ratio reached 3.5 percent.

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The deterioration has coincided with high inflation. Consumer prices rose 6.8 percent in May from a year earlier, slowing from April’s 7.2-percent pace and coming in below economists’ forecasts. Still, inflation remained above the central bank’s 2-percent to 4-percent target range for a third straight month.

The BSP has said it would “take necessary actions” to ensure inflation returns to its 3-percent target. Last week, the Monetary Board raised its benchmark interest rate by a quarter percentage point to 4.75 percent.

At the same time, the central bank has rolled out relief measures to cushion banks and borrowers from the economic fallout of the conflict.