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BMI, a Fitch Solutions company, warned that higher borrowing costs and rising living expenses could put more pressure on loan repayments through 2027, although banks have enough capital to absorb near-term shocks.
The concern is that rapid lending growth has helped keep the proportion of bad loans relatively stable, even as the actual amount of unpaid debt has increased.
Trouble beneath the numbers
About 3.3 percent of bank loans were classified as nonperforming in the second quarter of 2026, meaning borrowers had fallen significantly behind on payments, compared with an average of 2.6 percent in the decade before the pandemic, according to BMI.
BMI said this ratio could come under pressure as lending slows, making it harder for banks to offset the growing stock of troubled loans with new business.
Households feel the pressure
The research firm raised its forecast for Philippine loan growth this year to 10 percent from 8.5 percent, after lending increased 11.9 percent in August, but expects growth to ease further to 9 percent by the end of 2027.
"Consumer loans, a key source of credit demand, are already showing signs of moderation. Elevated energy and food prices will continue to erode purchasing power, while higher borrowing costs further dampen households' appetite for new loans. This will probably sustain further weakness in consumer loans," according to BMI.
BMI expects the Bangko Sentral ng Pilipinas to raise its benchmark interest rate by another 25 basis points in October, adding to borrowing costs as policymakers seek to contain inflation.
Banks have room to absorb shocks
Despite the risks, BMI said the banking system remains financially stable, with a capital adequacy ratio of 15.2 percent in the second quarter, comfortably above the 10-percent regulatory minimum.
That cushion has nevertheless narrowed from 16.5 percent in the second quarter of 2023, a trend BMI said warrants closer attention if it continues through 2027.
—Edited by Miguel R. Camus
