Slow credit growth, rate cuts key bank challenges in 2026

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

January 1, 2026 | 12:00am

MANILA, Philippines — Philippine banks are expected to contend with slower credit expansion, softer economic growth and further policy rate cuts from the Bangko Sentral ng Pilipinas (BSP) in 2026 as political uncertainty continues to weigh on business sentiment, according to BDO Unibank Inc.

In an exclusive assessment shared with The STAR, BDO said the local banking industry will face many of the same headwinds seen last year, limiting momentum despite generally ample liquidity in the financial system.

“The industry will have to cope with similar challenges experienced in 2025: slower gross domestic product (GDP) growth from the political uncertainty, slower credit growth and further cuts in BSP’s policy rates,” the bank said.

BDO noted that these risks come after a year in which the banking sector managed to post modest income growth, even as operating conditions became more difficult.

“The banking sector in general has managed modest income growth despite an environment of declining interest rates, slowing credit and GDP growth as well as uncertainty from the current political situation,” it said.

The BSP’s shift toward lower interest rates has helped ease funding costs and support liquidity, but it has also pressured margins and tempered loan demand amid a broader economic slowdown.

Based on central bank data, Philippine banks booked a modest 4.3-percent growth to P302.6 billion in profits as of September 2025, supported by sustained interest income and stable fee-based revenues.

BDO posted a four-percent growth in net income to P63.3 billion from January to September 2025, slower than the 12-percent growth recorded a year ago.

Despite these challenges, BDO said growth opportunities remain in specific segments, particularly consumer lending, which continues to benefit from strong household fundamentals.

“Consumer lending has remained robust given continued growth in consumption spending, driven by remittance flows from overseas Filipino workers and from the business process outsourcing industry, low unemployment levels, low inflation and continued growth in the number of salaried workers,” the bank said.

On the corporate side, the bank pointed to potential upside once regulatory processes are completed, particularly in the energy sector. “There is a pipeline of new power generation projects awaiting regulatory approval,” BDO said.

The bank’s outlook underscores a cautious but selective growth strategy for 2026, as lenders balance risk management with opportunities tied to consumption and infrastructure-related investment.