Philippine banks have limited Mideast exposure – BSP

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May 8, 2026 | 12:00am

MANILA, Philippines —  The Philippine banking sector has limited direct exposure to the Middle East conflict, but remains vulnerable to spillover risks from higher oil prices, rising inflation, foreign exchange volatility and tighter global financial conditions,  according to the Bangko Sentral ng Pilipinas.

In a report, the BSP said its latest supervisory assessments showed that risks from geopolitical tensions in the Middle East are “largely transmitted through indirect channels” rather than direct exposures.

“Banks’ strong capital and liquidity positions, diversified funding bases and proactive risk management practices provide cushions against these external spillovers, supporting overall system resilience amid heightened global uncertainty,” it said.

The central bank said the Philippine banking system remained resilient in the second half of 2025. Total assets of the banking system grew by 8.9 percent to P29.9 trillion as of end-2025, while deposits rose by 7.4 percent to P21.9 trillion. Capital likewise increased by 8.9 percent to P3.7 trillion.

Lending expanded by 11.7 percent to P17.1 trillion, driven mainly by household, electricity, real estate and wholesale loans. The BSP said banks adopted more selective growth strategies, shifting exposures toward these sectors while moderating lending to more volatile or externally exposed activities.

Household lending rose by 21.5 percent to P2.6 trillion, while loans to the electricity sector jumped by 26.9 percent to P1.9 trillion. Real estate loans grew by 8.7 percent to P3 trillion, while wholesale loans increased by 10.8 percent to P1.8 trillion.

The BSP said lending remained largely domestic-oriented, helping shield banks from some external shocks. However, it said banks have identified heightened sensitivity in fuel- and supply-chain-dependent sectors such as transportation, manufacturing, wholesale and retail trade, construction and utilities.

Despite the external risks, the BSP said stress test results showed that capital and liquidity buffers remain sufficient under baseline and moderate shock scenarios.

The local banking system also remained profitable, with net profit rising by 3.6 percent to P405.6 billion in 2025 from P391.3 billion a year earlier. Return on assets stood at 1.4 percent, while return on equity reached 11.5 percent.

The BSP said earnings were supported by core banking activities, particularly loans to individuals and higher investment yields. Net interest margin widened to 4.5 percent from 4.3 percent, as income gains offset the modest rise in funding costs.

Regulatory capital, leverage and liquidity ratios also stayed above BSP and international thresholds. The capital adequacy ratio of universal and commercial banks stood at 15.6 percent on a solo basis and 16 percent on a consolidated basis, while their liquidity coverage ratios reached 172.3 percent and 172.1 percent, respectively.

The BSP said policy reforms, proactive supervision and stronger reporting systems would help ensure that banks can absorb shocks while continuing to support economic activity.

“These initiatives strengthen system resilience, promote inclusion and sustain a secure, modern financial environment supportive of long-term growth,” the BSP said.