MOODY’S Ratings affirmed its investment-grade rating and stable outlook for BDO Unibank and Bank of the Philippine Islands (BPI), citing their ample liquidity and resilient profitability despite rising risks from expanding retail loan portfolios and elevated credit costs.
In separate statements on Thursday, Moody’s affirmed the two banks’ long-term and short-term local and foreign currency deposit ratings at Baa2/P-2.
The debt watcher said the ratings reflected both bank’s solid balance sheets and dominant market positions, but added that pressure on asset quality was expected to persist this year amid tougher macroeconomic conditions and inflation-driven strain on borrowers.
For BDO, Moody’s said the affirmation reflected the bank’s “good asset quality, strong funding and liquidity, as well as good profitability and adequate capital.”
The ratings agency noted that BDO continued to benefit from its dominant deposit franchise, which supports low-cost funding and strong liquidity metrics.
BDO’s current and savings account deposit ratio stood at 68 percent as of end-2025, while its less-stable funds ratio was at 23.1 percent and its core banking liquidity ratio was recorded at 20.6 percent.
The bank’s nonperforming loan ratio improved to 1.7 percent at end-2025 from 1.9 percent a year earlier, supported by higher write-offs from rapidly growing unsecured retail loans.
However, Moody’s said BDO’s gross credit costs rose to 0.65 percent in the first quarter of 2026 from 0.44 percent in full-year 2025 because of preemptive provisioning amid more challenging macroeconomic conditions and the growing share of retail loans.
“We expect credit costs to remain elevated as the bank’s unsecured retail loans continue to grow,” Moody’s said, warning at the same time that BDO’s high exposure to large corporate loans and long-dated investment securities could continue to pose risks to asset quality.
It said BDO’s profitability had weakened slightly, with return on assets declining to 1.6 percent in 2025 from 1.7 percent in 2024, easing further to 1.4 percent in the first quarter of 2026.
Moody’s said BDO’s profitability would likely remain at around 1.4 percent to 1.5 percent this year as credit costs and operating expenses stay elevated.
Meanwhile, Moody’s said BPI’s ratings were supported by “strong profitability, adequate capital, healthy liquidity and stable funding supported by its solid deposit franchise.”
Still, it flagged worsening asset quality due to rapid growth in higher-risk retail loans and emerging pressures in the corporate segment.
Moody’s noted that BPI’s bad loans ratio had increased to 3.4 percent at end-2025 from 3.1 percent a year earlier, while gross credit costs climbed to 0.75 percent from 0.32 percent.
It said the deterioration was largely due to the “seasoning” of retail loans following aggressive expansion in recent years, as well as the normalization of provisioning costs.
The credit rater added that BPI’s stage 2 loan ratio — or the ratio of loans that had experienced a significant increase in credit risk since initial recognition but had not yet been classified as impaired — had increased to 9.3 percent from 7.9 percent.
In the first quarter of 2026, several corporate loans were said to have slipped into “problem loan status” due to issues unrelated to the Middle East conflict, while gross credit costs rose further to 0.87 percent.
While BPI had started tightening credit underwriting standards with plans to moderate retail loan growth, Moody’s said risks would likely remain elevated through 2026.
“We expect the bank’s asset risks to remain elevated, with credit costs normalizing closer to the 0.9-percent range in 2026,” it said.
The ratings agency added that retail segments would experience “further strain in 2026, given the shrinking financial buffers of retail borrowers amid higher inflation in the Philippines.”
Upgrades for both banks were unlikely unless the Philippines’ sovereign rating is raised, Moody’s said, since the banks’ baseline credit assessments are already aligned with the country’s “Baa2” sovereign rating with a “stable” outlook.
Any downgrade in the sovereign rating would, therefore, also lead to a downgrade in the banks’ ratings.
NIÑA MYKA PAULINE ARCEO
