LOAN relief measures could help banks avoid a surge in bad debts but also dampen profitability, S&P Global Ratings said on Thursday.
“The Middle East war could strain Philippine banks,” S&P said in a report.
The Bangko Sentral ng Pilipinas’ (BSP) move to temporarily suspend loan repayments for borrowers affected by supply chain disruptions and surging energy prices, it said “may undermine bank profitability as net interest margins peak and credit losses remain elevated.”
“But it could avoid a spike in nonperforming loans (NPLs).”
The relief measures, which apply to all BSP-supervised financial institutions, include a six-month grace period (12 months for agricultural loans), exclusion of affected loans from reported NPLs and past due classifications and a call on banks to waive transaction fees on digital money transfers.
They will remain in effect until March 24, 2027.
S&P said that while the Philippines had no significant direct exposure to the Middle East, second-order risks were higher compared to neighboring countries given its dependence on oil imports and a lack of fuel and electricity subsidies for vulnerable groups.
Philippine banks also have a low exposure to the sectors most hit by the war — airlines, oil refining, chemicals and agriculture — and the overall impact of the loan relief “should be manageable.”
However, midsized corporates, smaller businesses and lower-income consumers could be vulnerable if the war continues. S&P noted that unsecured consumer loans, which make up about 10 percent of total bank loans, have been a primary growth driver for banks in recent years.
S&P said credit losses could reach 1.0 to 1.2 percent of the total loans over the next two years. Credit losses were at 1.0 percent in 2025, up from 0.7 percent in 2024.
Take-up of the loan relief, it also said, will likely be lower than that seen during the Covid-19 pandemic as it will be on an opt-in basis, and banks are expected to exercise prudence in approving applications.
The loan hit during the pandemic, S&P noted, was 2.1 percent.
Philippine banks overall are “well-placed to withstand shocks” given “solid” profitability. The return on assets in recent years was 1.4 to 1.5 percent, and banks were also said to have adequate buffers despite higher credit losses and margin adjustments due to BSP rate cuts.
The suspension of loan repayments could also reduce interest income and S&P said “these factors will weigh on the profitability outlook for the next one to two years.”
