Top Philippine banks’ strong capitalisation, liquidity a buffer for macro risks

Provisioning costs are expected to remain elevated as they expand their consumer loan books.

The top 10 banks in the Philippines should be able to cope with tariff-related “test” thanks to their strong capitalisation and liquidity.

"The Philippine economy should be resilient to tariffs due to low reliance on exports. Philippine banks' credit quality will stay strong amid relatively benign economic conditions," said Nikita Anand, S&P Global Ratings credit analyst.

However, indirect effects such as lower consumer spending and business volumes could affect the bank’s growth prospects and reduce profitability.

Philippine banks are expected to continue pursuing higher risk-adjusted returns by expanding their consumer loan books. Whilst this will improve diversification, the local consumer lending sector may lead to higher non-performing loans, Anand said.

“Banks' provisioning costs should hence stay elevated compared to historical averages. The asset quality of banks with a higher share of unsecured consumer loans should stay weaker than the sector average,” Anand said.

Philippine banks’ profitability has improved with better margins and sustained reduction of operation expenses.

“Midsize banks' profitability is likely to trail that of larger banks due to their higher share of riskier unsecured consumer loans and higher cost of funds as reflected in their relatively small deposit franchises," Anand said.

"State-owned banks' profitability should stay lower than that of private banks due to their policy role and vulnerable borrower profile. Large banks generally have strong capitalization and liquidity that will cushion them against unexpected risks,” Anand added.