Philippine banks dodge Middle East risk but corporate debt is the backdoor

Foreign reserves and prudent FX intervention serve as important buffers, BSP said.

Philippine banks’ direct financial exposure to the Middle East remains small, with only 1.9% of total cross-border claims and 1.6% of liabilities linked to the region and Africa, according to a study by the Bangko Sentral ng Pilipinas (BSP).

Exposures to Iran and Israel are negligible, and banking sector spillovers are more likely to arise from indirect channels, the central bank said in its 2025 Financial Stability Report published on 8 June 2026, warning of higher oil prices, tighter external financing, and weaker growth.

“Overall, the US-Iran war presents a material but manageable risk to Philippine financial stability,” the BSP said.

“Direct banking exposures to the region are small, and macrofinancial buffers—including sound bank capitalization, comfortable reserves, and an active macroprudential framework—provide resilience against immediate systemic stress,” it added.

The BSP mapped business relationship between Philippine firms and Middle Easter counterparties to assess possible spillovers. A small group of Philippine companies were found to be at the center of these networks, primarily from the utilities, industrials, IT, consumer staples, and financial sectors.

If these firms experience prolonged financial stress, their loan obligations become a transmission channel to the banking system, BSP said in an article within the financial stability review, written on 6 March 2026.

“Weaker revenues and compressed margins may reduce debt-servicing capacity, leading to delayed payments, restructurings, or higher defaults, and increasing credit risk for banks with significant exposures,” the central bank wrote.

The extent of spillovers depends largely on how long the conflict persists, it added.

Foreign reserves and prudent FX intervention serve as important buffers, BSP said.