According to an analysis by CreditSights, a Fitch Solutions company, Philippine financial institutions are projected to underperform in 2026, a trend underscored by a continuing deceleration of credit expansion during the first quarter. The report highlights that the domestic economy faces heightened growth and inflationary pressures stemming from the ongoing conflict in the Middle East. Given this challenging macroeconomic backdrop, CreditSights expects subdued loan growth and elevated credit costs across the sector for the remainder of the year. From a credit perspective, the firm maintains a preference for top-tier institutions over second-tier lenders, though it notes this preference does not extend to relative value (RV) metrics.
The asset quality of the country’s premier institutions—specifically BDO Unibank, Bank of the Philippine Islands (BPI), and Metrobank—continues to mirror an aggressive expansion into retail lending, with credit costs increasing across the board compared to the first quarter of 2025. Among these, BPI experienced the most notable asset deterioration across all sub-segments this quarter. While a high volume of large corporate books and comfortable reserve coverage kept credit costs manageable for most top-tier players, BPI’s coverage fell to a lower 87%. Meanwhile, second-tier institutions, including RCBC and Security Bank, recorded another quarter of weakening asset quality driven by brisk growth in riskier retail and small to medium enterprise (SME) lending portfolios. Philippine National Bank (PNB) was the sole second-tier lender to buck this downward trend. CreditSights remains cautious about these mid-tier banks due to their exposure to higher-risk segments, thin reserve covers ranging from 57% to 81%, and capital buffers vulnerable to being eroded by fast risk-weighted asset (RWA) growth that outpaces internal capital retention.
A combination of geopolitical conflict and domestic political friction dampened borrowing across all tiers during the opening quarter of the year. CreditSights observed that local market sentiment, already bruised by an earlier government graft scandal, was further suppressed by the Middle East crisis, leading to mixed loan performance across various sub-segments. Consequently, banking executives have turned less optimistic, forecasting a slowdown in the wholesale segment as corporate clients adjust to weakening demand. In response, banks are applying more selective underwriting criteria to consumer loans. This cautious outlook arrives despite data from the Bangko Sentral ng Pilipinas (BSP) showing that overall bank lending grew by 10.7% year-on-year in March—marking a slight acceleration from February—even as salary-based consumer loans and auto financing experienced a cooling period during the month.
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