Philippines among most exposed to loan concentration risks

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February 6, 2026 | 12:00am

MANILA, Philippines — The Philippines stands out as one of the most exposed banking systems in South and Southeast Asia to loan concentration risks, with stress tests by S&P Global Ratings showing that a single large corporate default could significantly erode bank earnings and capital buffers.

In a report, S&P said its scenario analysis found Brunei and the Philippines at the highest risk of damage from large borrower defaults due to high single-name loan concentration.

“Our scenario analysis, focused on loan concentration at banks in the region, found Brunei and the Philippines are at the highest risk. This is because of high single-name concentration in those countries,” the debt watcher said.

The heightened risk in the Philippines reflects the structure of its economy, where a handful of diversified conglomerates dominate the corporate sector.

S&P said this “is a key contributor to the high credit risk that the banking sector faces,” noting that the real economy and the financial system are deeply interconnected.

“The top 20 loans often represent around 20 percent of total loans and 100 to 200 percent of total capital at Philippine banks,” the report said, adding that a large default could quickly erode both profit and capital.

Despite these risks, the report stressed that the credit quality of large Philippine conglomerates has remained stable even as they enter more demanding phases of their investment cycles.

The ratings agency attributed this resilience to strong business diversification, mature core operations and access to liquidity, which provide a solid base for investments, largely in infrastructure and renewable energy.

At the same time, the report flagged relatively high leverage among large Philippine companies.

It said the top 50 largest listed firms in 2024 posted an average debt-to-operating profit ratio of about 4.4 times, while the largest conglomerates averaged 4.8 times.

S&P emphasized that most rated banks in the region, including those in the Philippines, have adequate capital, earnings and provisioning buffers to withstand an idiosyncratic large borrower default while maintaining minimum regulatory capital.

Banks also operate under prudential single-borrower exposure caps and conduct regular stress tests, measures designed to prevent a single failure from becoming systemic.

Still, the stress tests indicate that Philippine banks are among those that could lose more than a full year’s earnings before tax in an extreme concentration shock scenario.

While banks would likely spread provisioning over two to three years and draw on excess provisions built up in recent years, the report said loan concentration remains an “under-the-radar risk” that could amplify shocks if a major corporate borrower fails.

Overall, S&P said its base case sees stability across South and Southeast Asia, supported by strong regional growth and easing tariff pressures.

However, it cautioned that asset quality could still be tested if external shocks from global trade or geopolitical developments prove stronger than expected, underscoring the importance of monitoring concentration risks in banking systems such as the Philippines.