Moody’s keeps ‘stable’ outlook on PH banks
Moody’s Ratings maintained a stable outlook for the Philippine banking system, citing the country’s strong economic growth, fiscal consolidation efforts and robust macroeconomic fundamentals.
The global credit rating agency sees the Philippines’ real GDP expanding by 6 percent in 2025 and 2026 — one of the fastest-growing economies in Asia.
“Strong economic growth, underpinned by further rate cuts and stabilized inflation in 2025, will drive credit demand and support loan quality,” Moody’s Ratings said in its latest Banking System Outlook for the Philippines.
“Although global uncertainties pose upside risks to inflation, we expect it to remain between 2 percent and 4 percent, which will support further policy rate cuts in 2025. As a result, domestic consumption and investments will improve, giving further stimulus to the economy,” it said.
The credit rating agency added that given the country’s consumption-led economy, it expects the impact of higher tariffs on the Philippines under the Trump administration “to be muted compared to its regional peers.”
The Philippines currently holds an investment-grade credit rating of “Baa2” with a “stable” outlook from Moody’s. The agency’s last action was in August 2024.
Asset quality steady
Moody’s said local banks’ overall asset quality will hold steady but risks will vary between the larger and smaller banks.
Moody’s rates eight commercial banks in the Philippines, which, it said, together accounted for nearly 66 percent of total banking assets at the end of December 2024.
Among them, the larger Philippine banks were BDO, BPI, Metrobank and Chinabank. Smaller Philippine banks, meanwhile, referred to RCBC, Security Bank, PNB and Union Bank.
Moody’s said policy rate cuts will support borrowers’ debt repayment capacities, “which will mitigate potential loan quality deterioration from the newer retail and SME loans.”
“In particular, retail loans have been growing at 35 percent over the past two years, posing loan seasoning risks. The quality of loans to large conglomerates will remain solid, notwithstanding the concentration risks they pose to banks,” Moody’s said.
Loan-loss reserves will decrease, it added, but the larger Philippine banks will continue to have stronger buffers against any loan losses, compared with the smaller banks.
The Moody’s report also said local banks’ capital levels will remain high, “as strong shareholder support and internal capital generation keep pace with high credit growth.”
Credit growth accelerating to about 12 percent in 2025 can be expected as interest rates decline, boosting business activity and consumer sentiment, Moody’s said.
Reserve ratio requirement (RRR) cuts by the central bank will also drive credit growth, by releasing more liquidity for banks to channel into lending, it said.
Govt support
Moody’s said the probability of government support remains high.
“We expect the government to prioritize systemic stability and provide support for rated banks in times of need. The government is unlikely to adopt a bail-in regime in the next 12 to 18 months.”
The Bangko Sentral ng Pilipinas (BSP) since 2024 has reduced the key rates thrice totalling 75 basis points. The banks’ RRR, meanwhile, has been reduced twice to 5 percent for big banks starting March 28.
“The weak monetary policy transmission channel in the Philippines will limit the passthrough of policy rate cuts to lending rates, moderating the decline in banks’ net interest margins,” Moody’s said.
The growing share of higher-yielding retail and SME loans, as well as strong loan growth, supported by reserve ratio requirement cuts, will support loan yields, it said.
“Provisioning costs will increase, but remain low as banks will apply potential write-offs to their existing loan-loss reserves, further supporting reported profitability,” the rating agency said.
However, it added that banks will continue to be largely deposit-funded and have robust liquidity given their large holdings of government securities.
The decrease stems from the banks unwinding some government securities to reallocate this liquidity to loan growth. Moody’s expects reserve ratio requirement cuts by the central bank will also inject more liquidity into the banking system.
“We expect the central bank to remain proactive in providing liquidity to the system, to prevent any near-term liquidity stress that may result from a sudden change in economic conditions. Banks’ loan-to-deposit ratios will increase, given slower deposit growth and accelerated loan growth,” it said.
Most profitable in PH
Michael Ricafort, RCBC chief economist, said on Wednesday Philippine banks are the most profitable industries in the country, with earnings growth much faster than GDP growth, for the country’s largest banks.
Local banks’ loan growth is “more than twice GDP growth of +5.6 percent—above +12 percent recently, the fastest in more than two years. NPL ratio among the lowest in more than a year is at 3.38 percent,” Ricafort said.
He said the latest consumer loan growth of about 24 percent or more than four times GDP growth amid favorable demographics, “could support higher net interest rate margins.”
“The Philippines remains one of the fastest growing economies in the ASEAN, so the banking industry would be one of the biggest beneficiaries in terms of faster growth in loans, deposits, spreads, fee income and overall revenues, earnings with capitalization way above the local minimum standard at 10 percent and minimum international standard of 8 percent,” Ricafort said.
For the coming months, Ricafort said the latest RRR cut could infuse about P330 billion into the banking system and increase the banks’ loans and investments, as well as reduce intermediation costs.
Furthermore, the Fed and BSP rate cuts in the coming months would also help increase loan demand, Ricafort said.
But he stressed that this could be offset by US President Trump’s protectionist measures, leading to a slowdown in global trade, investments, employment and overall world GDP growth.
