Philippine banks face slower loans and rising credit costs in 2026

The Middle East war and an earlier graft scandal is weighing on loan demand, says CreditSights.

Philippine banks are expected to underperform in 2026 with loan growth further decelerating in Q1, said CreditSights, a Fitch Solution service.

The country is exposed to growth and inflationary pressures from the Middle East war, the report said.

“Against this backdrop, we expect slower loan growth, and higher credit costs this year and prefer the large first-tier banks from a credit though not an [relative value] RV perspective,” CreditSights wrote in an analysis published on 18 May 2026.

Asset quality of the first-tier banks in the Philippines continued to reflect their increased retail lending with credit costs all rising compared to Q1 2025. First-tier banks are BDO Unibank, the Bank of the Philippine Islands (BPI), and Metrobank in CreditSights' classification.

BPI in particular, saw a relatively greater deterioration this quarter across all sub-segments, CreditSights said.

All banks’ credit costs remained contained thanks to its large corporate books and what CreditSights called “comfortable” reserve covers except for BPI which is at a lower 87%, it added.

Second tier banks also witnessed another quarter of asset quality deterioration from their brisk growth in riskier retail/ small and medium enterprises (SME) lending. Philippine National Bank (PNB) alone bucked the trend. Second-tier banks are RCBC, Security Bank, and PNB.  

"We remain cautious towards the second-tier banks due to asset quality risks from their more focused expansion in riskier lending segments, thin reserve covers (57-81%) and capital buffers that have been or are prone to being worn by brisk [risk-weighted assets] (RWA) growth that outpace their internal capital accumulation," CreditSights said.

Loan growth in all banks came in slower in Q1 due to political and war factors.

“Loan growth mostly decelerated in Q1 as domestic sentiment remains impacted by the earlier graft scandal and further dampened by the Middle East conflict,” CreditSights said, adding that growth at the sub-segment level was mixed this quarter across the banks.

Banks’ overall guidance for loan growth has turned less optimistic, with expectations for the wholesale segment to slow as companies adjust to lower demand.

In the consumer segment, banks have become more selective about underwriting, the report added.

As of March, bank lending grew by 10.7% year-on-year (YoY), faster than in February, according to central bank data.

The month saw a slowdown in motor vehicle loans and salary based general purpose consumption loans, the Bangko Sentral ng Pilipinas (BSP) said.

Banks under CreditSights’ coverage include BDO Unibank, BPI, Metrobank, PNB, Security Bank, and RCBC.