THE Philippine banking system remains resilient despite risks from the Middle East war, with the Bangko Sentral ng Pilipinas (BSP) saying the country’s financial institutions have limited direct exposure to the crisis and remain well-positioned to absorb external shocks.
In its latest financial system report, the central bank said the risks to local banks would come mainly through indirect channels.
“Latest supervisory assessments likewise indicate that the banking system’s direct exposures to geopolitical tensions in the Middle East remain limited,” the BSP said.
It added that “risks largely transmitted through indirect channels such as higher oil prices, inflationary pressures, foreign exchange (FX) movements, and tighter global financial conditions.”
“Banks’ strong capital and liquidity positions, diversified funding bases, and proactive risk management practices provide cushions against these external spillovers, supporting overall system resilience amid heightened global uncertainty.”
The BSP’s assessment came as the Middle East conflict continues to roil global markets and drive up energy prices, raising fears of renewed inflationary pressures and tighter monetary conditions worldwide.
Higher crude prices pose risks to inflation, particularly for oil-importing economies such as the Philippines, as elevated fuel costs could lead to higher transport and food prices and weigh on household consumption and business activity.
The BSP said the country’s banking system remained capable of weathering the risks given the sector’s solid financial position and improving profitability.
Central bank data showed that banks’ net profit increased by 3.6 percent to P405.6 billion at the end of 2025 from P391.3 billion in 2024. The BSP said the stronger earnings had further reinforced banks’ capital positions and improved their ability to absorb shocks.
The banking sector also continued to dominate the Philippine financial system, accounting for 83.2 percent of total financial system resources, underscoring its critical role in supporting economic growth and financial intermediation.
Meanwhile, the credit-to-gross domestic product (GDP) ratio improved to 61.1 percent at end-2025 from 57.9 percent a year earlier, reflecting deeper financial intermediation and sustained lending activity in the economy.
The central bank said that banks “benefited from easing macroeconomic conditions and the BSP’s monetary policy cycle, which supported prudent portfolio rebalancing toward high-quality, liquid instruments while preserving flexibility in risk management.”
“Core operations remained anchored on stable, resident deposit funding, providing a reliable and low-cost source of liquidity,” it added. NIÑA MYKA PAULINE ARCEO
