PHILIPPINE banks are facing rising asset-quality risks as slowing economic growth, elevated inflation and growing exposure to unsecured consumer loans increase the likelihood of higher credit losses in the coming months, Fitch Ratings said.
In a peer review released on Thursday, the debt watcher said it “believes recent economic challenges in the Philippines are likely to drive higher credit impairments and lower bank profitability in the near term.”
“But we expect the Philippines to remain an economic outperformer among peers over the medium term, supporting banks’ growth and profitability,” Fitch added.
It cited disruptions in public investments, elevated energy prices and slowing economic activity as factors that had increased risks to the country’s medium-term growth outlook.
These challenges had contributed to Fitch’s decision in April to revise the outlook on the Philippines’ sovereign credit rating to “negative” from “stable.”
The ratings agency said asset-quality performance among the country’s large privately owned banks remained anchored by substantial exposure to corporate borrowers, which generally possess stronger financial profiles and larger liquidity buffers than retail customers.
However, Fitch warned that underlying credit risks were continuing to build, particularly in the consumer lending segment.
The agency identified the rapid expansion of unsecured lending, especially credit card loans, as one of the banking sector’s key vulnerabilities.
“Underlying asset quality risk is likely to simmer and the rapid growth of unsecured consumer lending in recent years is a vulnerability, especially amid slower income growth and high inflation,” it said.
Fitch cited that credit card loans have tripled since the end of 2020 and accounted for around eight percent of total banking system loans by end-2025.
Among the country’s largest private banks, credit card receivables represented between 7.5 percent and 9.6 percent of total loan portfolios as of end-2025.
Fitch said these loans carry greater risks because they are unsecured, relatively new and more susceptible to borrower stress during periods of economic weakness.
“We believe deterioration is more likely to manifest through higher write-offs and credit costs than in impairment rates,” it said.
It said regulatory relief measures introduced by the Bangko Sentral ng Pilipinas in April this year, including repayment grace periods and forbearance provisions, are likely to prevent a significant spike in impaired-loan ratios in the short term.
Nevertheless, Fitch expects banks to raise provisions in anticipation of higher defaults, particularly in credit card portfolios.
“Credit card loans could see a significant increase in defaults that incur significant loan impairment charges,” Fitch said.
As a result, higher provisioning expenses are expected to weigh on earnings this year.
Fitch projects credit costs for major lenders such as BDO Unibank Inc. and Metropolitan Bank & Trust Co. to rise to around 100 basis points as loan impairment charges increase.
The resulting decline in profitability, however, is expected to be manageable because of adequate loan-loss reserves, stable net interest margins and strong pre-provision earnings.
“Higher provisions are likely to be a drag on banks’ near-term earnings, but we expect a gradual recovery in 2027,” it said.
Meanwhile, Philippine banks are expected to remain well-capitalized despite the more adverse economic backdrop.
Fitch said slower balance-sheet expansion and strong earnings generation should help preserve capital buffers over the next 12 to 18 months.
The agency also expects lending growth to moderate as banks become more cautious. It lowered its forecast for system-wide loan growth this year to 9 percent from an earlier projection of 12 percent, citing macroeconomic uncertainty, higher long-term interest rates and reduced risk appetite among lenders.
