PHILIPPINE banks could see slower loan growth this year as weaker economic momentum, softer business sentiment and lower investment activity weigh on lending demand, CreditSights said.
“The 2026 pipeline for corporate capex (capital expenditure) loans is lower amid soft business sentiment, so loan growth will continue to be retail/SME (small and medium enterprise)-led,” the Fitch Group unit said on Monday.
Banks, it added, “have guided for a slight slowdown in overall loan growth this year in line with the economy.”
Gross domestic product (GDP) growth slowed sharply to 3.0 percent in the fourth quarter last year, the weakest pace in five years, largely due to a contraction in fixed investment and softer government spending following a flood control project scandal.
CreditSights said both reduced public infrastructure spending and cautious private investment were likely to weigh on economic activity and corporate borrowing in the first half of 2026.
Data from the Bangko Sentral ng Pilipinas (BSP) showed that outstanding loans of universal and commercial banks (U/KBs) expanded by 9.2 percent in December last year, down from November’s 10.3 percent and the slowest since February 2024’s 8.6 percent.
Month on month, outstanding U/KB loans fell by 2.0 percent after adjusting for seasonal fluctuations.
CreditSights, meanwhile, said that net interest margins (NIMs), or the difference between what banks earn from lending and what they pay for deposits, had generally declined among the country’s largest banks, including BDO Unibank, Bank of the Philippine Islands (BPI) and Metropolitan Bank and Trust Co. (Metrobank), reflecting cumulative policy rate cuts since August 2024
Reductions in reserve requirement ratios, tighter loan-to-deposit ratios, and a shift toward higher-yielding retail loans partly offset the impact of lower interest rates, it added.
Among the banks studied, BPI stood out for recording strong year-on-year improvement in NIM, driven by robust growth in higher-yielding retail and micro, small and medium enterprise lending.
Meanwhile, second-tier banks such as Philippine National Bank (PNB), Security Bank, and Rizal Commercial Banking Corp. (RCBC) generally maintained stronger margins because of their larger exposure to retail lending.
However, the expansion into retail and SME lending has also led to emerging asset quality risks. CreditSights said large banks had seen some pressure from rising delinquencies, particularly in unsecured retail loans and certain auto loans.
Even so, the report said overall credit costs for 2025 remained manageable and were supported by large corporate loan books and adequate loan loss reserves, although BPI’s reserve coverage ratio was noted to be lower than its peers at about 95 percent.
CreditSights also observed more significant asset quality deterioration among some second-tier banks. It said that Security Bank and RCBC, which expanded aggressively into higher-yielding but riskier retail and SME lending segments, were seeing rising credit costs.
“We continue to prefer the large first-tier banks from a credit though not an RV (relative value) perspective, and remain cautious towards the second-tier banks...,” it said.
This was “due to asset quality risks from their recent aggressive expansion in riskier lending segments, thin reserve covers (72-86 percent) and capital buffers that have been or are prone to being worn by brisk RWA (risk-weighted asset) growth that outpace their internal capital accumulation.”
CreditSights said it was maintaining underperform recommendations for BDO and BPI from a relative value standpoint.
Security Bank, RCBC and PNB are also expected to underperform due to a combination of tight RV and weaker fundamental outlooks.
Metrobank, meanwhile, kept its market perform recommendation.
