PH banks seen resilient amid consumer, graft risks

The Philippine banking system is expected to remain resilient despite mounting risks, including pressure on asset quality, as well as an ongoing graft scandal that could weigh on corporate borrowers’ ability to repay on time.

Moody’s Ratings said in a note to clients that it was maintaining a “stable” outlook on local banks, citing a steady operating environment and sufficient buffers against potential losses from problem loans.

The agency said these strengths should help offset modest pressures on asset quality, which are partly driven by banks’ growing exposure to higher-yielding but riskier consumer loans.

Banks have been expanding in this higher-yield segment to protect margins amid low interest rates and to support broader financial inclusion.

At the same time, the ongoing probe into questionable flood control projects is seen to weigh on banks’ loan quality.

Moody’s said the graft scandal, which has paralyzed public works, could undermine business confidence and strain the cash flow of construction firms, affecting their ability to repay loans. Job losses in affected sectors could also add pressure to retail lending.

“Unsecured products accounted for most of the growth in retail loans, so credit costs will likely increase as this portfolio seasons,” Moody’s said.

“At the same time, the ongoing probe is likely to delay payments to the construction sector and related industries, which will affect the repayment capacity of borrowers in these areas. As these sectors are labor-intensive, any contraction could lead to job losses and elevate default risk on retail loans,” it added.

Outstanding loans provided by big banks rose 10.3 percent from a year earlier to nearly P14 trillion in November 2025, latest available data from the Bangko Sentral ng Pilipinas (BSP) showed.

Loan growth to moderate

This comes as the BSP presses ahead with an interest rate-cutting campaign aimed at supporting an economy weighed down by a widening probe into anomalous flood control projects. The graft scandal has exposed weaknesses in governance and stalled public works, bruising business and consumer confidence.

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According to Moody’s, loan growth is expected to moderate as business credit demand will decline with weaker confidence in 2026. This, in turn, will help ease capital requirements of banks.

Over the next 12 to 18 months, the debt watcher projected bank lending growth to moderate to between 8 percent to 9 percent, down from the average of 10.4 percent from 2022 to 2024.

Even so, growth in higher-yielding retail loans would help sustain bank margins despite the lower interest rate environment, Moody’s added. In addition, the firm noted that some banks were increasing exposure to project finance, which offers longer tenors and higher yields, further supporting margins.

Banks are also seen to maintain healthy loan-to-deposit ratios, indicating sufficient liquidity to support credit demand.

“We expect the government to prioritize systemic stability and provide support for rated banks in times of need,” Moody’s said. “The government is unlikely to adopt a bail-in regime in the next 12 to 18 months.”