Philippine banks brace for more bad loans and less profit

Fitch also flagged the rapid expansion in unsecured credit card receivables.

Philippine banks face higher credit impairments and lower profitability in 2026 as the economy slows and with banks expanding into the unsecured credit card segment.

Credit deterioration is more likely to manifest through higher credit costs than in reported impaired-loan ratios, however, especially on the back of recent regulatory relief measures, said Fitch Ratings.

In June, the Bangko Sentral ng Pilipinas (BSP) allowed banks and quasi-banks to temporarily exclude certain unrealized losses on computing regulatory capital until year-end.

CreditSights by Fitch Solutions warned in a separate report that the BSP’s relief measures may incentivize banks to take on more risks.

Meanwhile, Philippine banks’ rapid expansion in unsecured credit card receivables is a vulnerability due to the higher intrinsic risks of the product, which has risen to around 8% of total lending in the system, Fitch Ratings said.

Higher credit costs are likely to weigh on bank profitability as banks ramp up provisions, Fitch said.

Earlier in June, the BSP identified a small group of Philippine companies most exposed to the Middle East conflict—mainly companies in the utilities, industrials, information technology, consumer staples, and financial services sectors.

The BSP said weaker revenue and tighter margins in these sectors could hurt repayment capacity and increase restructurings and defaults.

Fitch Ratings said that higher inflation will weigh on household finances and, in turn, debt-servicing capability.

Some banks, like BDO Unibank and the Metropolitan Bank & Trust Company (Metrobank), are expected to see earnings recover in 2027 as net interest margins widen and credit provisions ease, Fitch said.

“A strong funding and liquidity profile position the banks to benefit from shifts in monetary policy and capitalisation should also remain stable,” the report said.