Moody’s keeps stable outlook on Philippines banks

Upgrade to High-Speed Internet for only ₱1499/month!

Enjoy up to 100 Mbps fiber broadband, perfect for browsing, streaming, and gaming.

Visit Suniway.ph to learn

February 10, 2026 | 12:00am

MANILA, Philippines — Moody’s Ratings kept a stable outlook on the Philippine banking system, as strong capital and liquidity buffers could cushion banks from moderate asset quality pressure arising from rapid retail loan growth and risks linked to an ongoing corruption probe in flood control projects.

In its latest Banking System Outlook dated Feb. 9, Moody’s said Philippine banks remain well positioned despite signs of rising credit costs, supported by adequate loan loss buffers and solid profitability.

However, asset quality is expected to deteriorate moderately as banks grapple with unseasoned risks from fast-growing retail exposures and spillover effects from delayed payments in construction-related sectors linked to the flood control investigation.

“We maintain a stable outlook for the Philippines’ banking system, underpinned by a stable operating environment and adequate loan-loss buffers. However, asset quality is expected to deteriorate moderately due to unseasoned loan risks stemming from strong retail loan growth in recent years,” Moody’s said.

The debt watcher projects Philippine economic growth to rebound to 5.5 percent in 2026 from 4.4 percent in 2025, driven by household consumption, steady remittances, a recovery in public investment and continued reforms.

It noted that a more accommodative monetary policy stance would help support consumption and ease debt servicing burdens, although downside risks remain due to global trade uncertainty, climate-related shocks and weaker business sentiment amid the ongoing probe.

On asset quality, Moody’s flagged the sharp expansion in retail lending, which grew at an annualized rate of 20 percent in the first nin+e months of 2025, far outpacing the eight percent growth for total loans.

Unsecured products accounted for most of the increase, raising the likelihood of higher credit costs as these loans season. At the same time, delays in payments to construction firms and related industries could weaken borrowers’ repayment capacity and elevate default risks, particularly because these sectors are labor-intensive.

Despite these pressures, headline nonperforming loan ratios have remained stable, supported by strong provisioning.

Profitability is expected to remain stable as wider net interest margins offset higher provisions. Moody’s said growth in higher-yielding retail loans, increased exposure to longer-tenor project finance and extended investment portfolio durations would help sustain margins even in a lower interest rate environment.

“Fee income is expected to rise alongside the continued growth in credit card lending. However, these benefits to earnings will be partially offset by higher credit costs stemming from asset quality deterioration,” Moody’s said.