Fitch sees lower loan growth, profitability for Philippine banks

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June 12, 2026 | 12:00am

MANILA, Philippines — Philippine banks may face weaker loan growth, higher credit costs and lower profitability this year as elevated inflation weighs on the country’s consumption-led economy, according to Fitch Ratings.

In a note, Fitch Ratings revised its sector outlook for Philippine banks to “deteriorating” at mid-year 2026 from its “neutral” outlook at the start of the year. Thailand and Sri Lanka were also kept on “deteriorating,” while most banking systems in Asia-Pacific (APAC) were rated “neutral.”

“In the Philippines, significantly higher inflation is hurting a consumption-led economy. We also expect weaker loan growth, higher credit costs and lower operating profitability, even if higher rates provide some support to margins,” Fitch said.

The credit watcher said APAC banks face a split in credit conditions in mid-2026 as the US-Iran conflict drives up energy prices and weighs on global growth prospects. It said the region’s heavy dependence on oil and gas imports from Gulf Cooperation Council exporters makes several economies more vulnerable to inflation and weaker growth.

Fitch said the pressure is “skewed to the downside” in selected markets, including Thailand and the Philippines, where banking sector outlooks are deteriorating.

“Most bank ratings in APAC remain Stable. Where we have Negative rating outlooks, they largely reflect the Sovereign outlook, such as in Indonesia, Thailand and the Philippines,” Jonathan Cornish, head of APAC bank ratings at Fitch, said.

Cornish said about half of the region’s bank issuer default ratings are driven by their standalone or intrinsic credit profiles, while the other half are supported by expectations of government support, mostly from sovereigns.

The warning comes even as credit growth in the Philippines continued to gain traction. Latest Bangko Sentral ng Pilipinas data showed bank lending grew by 11.4 percent to P14.75 trillion in April. This was faster than the 11.1-percent growth in March and marked the fastest pace in nine months.

Philippine banks also remained profitable in the first quarter, with combined net income rising by nearly three percent to P104.82 billion, based on central bank data. Net interest income climbed by 12.44 percent to P310.59 billion, while non-interest income stood at P60.1 billion.

However, Fitch said higher interest rates may not be enough to fully cushion the impact of slower credit growth and rising provisioning needs if the external shock persists.

“One trigger for less benign conditions is a prolonged Middle East conflict or fallout from the conflict e.g. supply chain disruptions, higher inflation and weaker macroeconomic variables,” Cornish said.

He said bank viability ratings could be tested under Fitch’s “adverse scenario,” with the impact likely to show first through higher loan loss provisions.

“We expect some deterioration in asset quality and loss-absorption, but banks generally have capacity to weather this,” Cornish said.

Fitch said it sees little ratings impact in 2026 for now.

However, it warned that the longer the conflict drags on, the greater the risk that bank credit profiles could weaken, depending on the extent of policy intervention and support.

Across the region, Fitch said banking systems in Greater China are expected to remain relatively resilient through 2026. China and Hong Kong were revised to “neutral” from “deteriorating” as stronger-than-expected growth, easing deflationary pressure and better net interest margin conditions supported their outlooks.

Japan remained on an “improving” outlook, supported by strong corporate profits, wage growth and the benefits of higher domestic interest rates. South Korea and India were also seen as relatively better placed than many peers, while Singapore, Australia and New Zealand were expected to remain broadly stable.