The Philippine banking sector is bracing for slower credit growth but possesses sufficient capital buffers to weather severe stress, according to a report by S&P Global Ratings. The rating agency noted that banks’ common equity tier 1 capital ratios are expected to remain comfortably above regulatory minimums even under extreme scenarios, such as nonperforming loans doubling from their late-2025 levels. While the system as a whole exhibits strong loss-absorption capacity, analysts warned that certain midsize institutions face heightened vulnerability due to greater exposure to higher-risk segments, with a severe economic downturn potentially driving two midsize lenders into pretax losses.

Asset quality pressures are primarily concentrated in unsecured consumer financing and lending to small and medium-sized enterprises. S&P highlighted that rising living costs and employment uncertainties continue to weigh on lower-income households, leading to a gradual deterioration in credit card, auto, and personal loan portfolios. Central bank data reinforces this trend, showing that while overall lending accelerated in July driven by corporate borrowing, consumer credit growth lost momentum amid subdued consumer confidence. The banking system’s long-term stability will ultimately depend on how effectively institutions manage rising provisioning costs and the growing share of unsecured debt on their balance sheets.

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