War seen posing ‘manageable’ risk to PH financial stability
The war in the Middle East presents a meaningful but manageable risk to the Philippines’ financial stability, a central bank-led group said, noting that the banking system has limited exposure to Gulf countries even as some Philippine companies could face mounting pressure from the conflict’s economic fallout.
In its 2025 report released on Monday, the Financial Stability Coordination Council (FSCC) flagged the conflict as one of several risks to the domestic financial system.
The council also cited rising debt across sectors, elevated property prices, increased lending to conglomerates and other select industries, a buildup in unsecured consumer loans—largely credit card debt—and growing cyberthreats.
The FSCC—composed of the Bangko Sentral ng Pilipinas, Department of Finance, Insurance Commission, Philippine Deposit Insurance Corp. and Securities and Exchange Commission—said the war “presents a material but manageable risk to Philippine financial stability.”
It said the main transmission channels run through imported inflation, a wider current account deficit and tighter external financing conditions, which could weigh on growth and increase credit risks if sustained.
The council added that a small group of domestic companies—primarily in utilities, industrials, information technology, consumer staples and financial services—sit at the center of bilateral networks between the Philippines and the Middle East.
“Disruptions affecting their Middle Eastern partners could adversely impact operations,” it said. “If these firms experience prolonged financial stress, their loan obligations become a transmission channel to the banking system.”
“Weaker revenues and compressed margins may reduce debt-servicing capacity, leading to delayed payments, restructurings or higher defaults, and increasing credit risk for banks with significant exposures,” it added.
Even so, the FSCC said Philippine banks’ direct financial exposure to the Middle East remains small.
“Exposures to Iran and Israel are negligible, suggesting banking-sector spillovers are more likely to arise from indirect channels—higher oil prices, tighter external financing, and weaker growth—rather than direct counterparty defaults,” it explained.
In a separate note, Moody’s Ratings said the record strength of the US dollar, which has gained since the outbreak of the war amid safe-haven demand, will test the credit strength of companies across South and Southeast Asia over the next 12 to 18 months, including in the Philippines.
Locally, Moody’s said some of its rated companies were exposed to dollar strength. It noted that PLDT Inc. has 14 percent of its debt denominated in US dollars, though active hedging reduces its unhedged exposure to around 5 percent of total debt.
Moody’s also said First Pacific Co. Ltd. relies on dividends from key operating companies in Indonesia and the Philippines, both of which have experienced currency weakness against the US dollar.
It added that most of Philippine Airlines Inc.’s $1.8-billion debt is dollar-denominated, including $1.4 billion in aircraft lease liabilities and asset-backed securities. Jet fuel, which accounts for about 31 percent of operating expenses, is also priced in dollars, and the airline does not hedge fuel costs, leaving it exposed to volatility in oil prices and exchange rates.
“Sectors with significant US dollar-denominated costs and predominantly local-currency revenues—notably airlines and Indian oil marketing companies—face the greatest pressure given limited natural hedges,” the debt watcher said.
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