Philippine banks resilient even if bad loans double: S&P

Two midsize banks could make a pretax loss in a severe stress scenario.

The Philippine banking sector faces weaker credit growth but should be resilient even if bad loans double, according to S&P Global Ratings.

Banks’ common equity tier 1 (CET1) ratios should remain above minimum requirements even if earnings were to fall sharply, and they should remain resilient even in a severe scenario in which nonperforming loans (NPLs) double from levels at the end of 2025, the credit rating agency said in a commentary on 8 September 2026.

"However, some midsize banks are more vulnerable than the largest due to their higher exposure to riskier segments,” said Nikita Anand, analyst at S&P Global Ratings.

Two midsize banks could make a pretax loss in a severe stress scenario, Anand said.

NPLs are expected to climb in riskier segments, particularly those exposed to lower income households as well as small and midsize enterprises (SMEs). These segments grapple with rising living costs and unemployment.

Asset quality will continue moderately deteriorating for segments such as autos, credit cards, and personal loans, S&P said.

"The sector's ability to maintain stability will depend on how well banks manage rising credit costs and the increasing share of riskier unsecured loans in their portfolios," Anand said.

Bank lending grew faster in the Philippines in July, carried by loans for business activities. Consumer loans slowed, however, with the Bangko Sentral ng Pilipinas noting that the growth in credit card and motor vehicle loans softened during the month, and that consumer confidence remained weak.