Moody’s keeps stable outlook for Philippine banks

THE PHILIPPINE BANKING system remains stable as its steady profitability, funding and liquidity, as well as strong capital position can help temper potential asset quality risks from the rise in retail loans and the economic fallout from an ongoing corruption probe, Moody’s Ratings said. 

“We maintain a stable outlook for the Philippines’ (Baa2 stable) banking system, underpinned by a stable operating environment and adequate loan-loss buffers,” Moody’s Ratings said in a report on Monday. 

A stable outlook means the debt watcher’s assessment of rated local lenders will likely be unchanged over the next 12 to 18 months.

Moody’s currently rates eight commercial banks in the country, namely, BDO Unibank, Inc., Metropolitan Bank and Trust Co., Bank of the Philippine Islands, China Banking Corp., Rizal Commercial Banking Corp., Philippine National Bank, Union Bank of the Philippines, and Security Bank Corp.

These lenders hold about 66% of the sector’s total assets as of end-September 2025.

Of the eight, only Security Bank has a negative outlook from Moody’s.

The debt watcher noted that weak investor sentiment arising from the flood control scandal poses risks to the industry, particularly in potential payment delays in the construction sector. 

This, alongside higher credit costs, could taint the industry’s asset quality, Moody’s said.

Late last year, several lawmakers, Public Works officials and private contractors were embroiled in corruption allegations tied to anomalous flood control projects across the country.

“Unsecured products accounted for most of the growth in retail loans, so credit costs will likely increase as this portfolio seasons,” Moody’s said.

“At the same time, the ongoing probe is likely to delay payments to the construction sector and related industries, which will affect the repayment capacity of borrowers in these areas.”

However, Moody’s said the anticipated economic recovery and further easing by the Bangko Sentral ng Pilipinas (BSP) may offer some relief for Philippine banks. 

For 2026, Moody’s sees the country’s gross domestic product (GDP) growing by 5.5% on the back of strong household consumption, sustained remittance inflows from overseas Filipinos, improving public investments and ongoing reforms.

If realized, this year’s GDP growth would pick up from the five-year low of 4.4% in 2025 and would settle at the midpoint of the government’s 5%-6% target for the year.

The BSP has so far lowered borrowing costs by a total of 200 basis points (bps) since August 2024, bringing the key policy rate to 4.5%.

In 2025 alone, it delivered five straight 25-bp cuts, with the last two prompted by dim consumer and business sentiment due to the flood control fallout.

BSP Governor Eli M. Remolona, Jr. has left the door open for another cut at their Feb. 19 meeting if the fourth-quarter growth slowdown proves to be demand-driven.

“Nonetheless, a more accommodative monetary policy stance will help support private consumption and ease the debt servicing costs of some borrowers,” Moody’s said.

Moody’s likewise expects Philippine banks to maintain strong capitalization as internal capital generation matches capital consumption.

However, it sees lending growth slowing to between 8% and 9% over the next 12 to 18 months.

Bank lending has posted double-digit expansion for nearly two years, since May 2024, based on BSP data.

Meanwhile, Moody’s said the industry could continue to rake in profits as wider net interest margins due to rising higher-yielding retail loans offset the impact of higher provisions and lower interest rates. 

Local banks’ funding and liquidity are also likely to hold up this year, the debt watcher noted.

“Banks maintain healthy loan-to-deposit ratios, indicating sufficient liquidity to support credit demand,” Moody’s said. “While the rise in long-tenor project financing introduces funding risks from maturity transformation, Philippine banks have consistently maintained steady net stable funding ratios, a trend we expect will continue.”

“Strong liquidity positions, primarily in cash and government securities, will also remain stable and help address short-term funding gaps,” it added. — Katherine K. Chan