‘Philippines banking system braces for evolving risks in 2026’

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MANILA, Philippines — The Philippine banking system heads into 2026 from a position of strength, supported by solid capital buffers, robust liquidity and sustained profitability, even as the Bangko Sentral ng Pilipinas (BSP) flags emerging vulnerabilities tied to credit concentration, cybersecurity threats and shifting global conditions.

“The Philippine banking system remains resilient, backed by strong earnings and a healthy balance sheet, despite moderating economic growth,” the BSP said in an interview with The STAR, underscoring the system’s ability to absorb shocks while continuing to support economic activity.

Total assets of the Philippine banking system grew by 7.1 percent year-on-year to P28.3 trillion as of end-October, driven mainly by loan expansion, according to the BSP.

Credit growth remained robust, rising by 10.7 percent to P16.1 trillion, with lending expanding across major sectors. The BSP said loan quality “remains stable, underpinned by a low non-performing loan ratio, benign inflation, lower borrowing costs and effective credit risk management.”

On the funding side, deposits increased by seven percent to P20.8 trillion, largely due to higher savings deposits. The BSP noted that most deposits were peso-denominated and placed by residents, limiting exposures to external risks.

Profitability also held firm. Banks booked P302.6 billion in profits for the period ending September 2025, up by 4.3 percent year-on-year, supported by sustained interest income and stable fee-based revenues.

Capitalization remained well above regulatory and global standards. As of end-September 2025, the capital adequacy ratio stood at 16.1 percent on a solo basis and 16.5 percent on a consolidated basis, giving banks ample capacity to absorb losses and continue lending.

Liquidity conditions were similarly strong. Universal and commercial banks posted a liquidity coverage ratio of 181.3 percent as of end-September and a net stable funding ratio of 134.7 percent as of end-August 2025.

The BSP said these metrics reinforce market confidence and lending capacity even under stress.

Consumer credit, property   segments under watch

While the overall system remains sound, the BSP said it continues to monitor specific lending segments as 2026 approaches.

“As we approach 2026, the Philippine banking system remains fundamentally sound, but we continue to closely monitor key lending segments to ensure sustained resilience,” the BSP said.

Consumer loans continue to perform well, supported by established underwriting standards and credit risk management practices. Growth has been particularly strong in credit cards and salary-based products, reflecting credit’s role in household consumption.

“While delinquencies are currently contained and covered by sufficient loan-loss provisions, rising unsecured household lending underscores the importance of reinforcing strict underwriting standards and maintaining ample buffers to safeguard asset quality,” the BSP said.

Real estate exposures, meanwhile, remain manageable under existing prudential safeguards. However, the BSP noted that “certain segments of the commercial property market face elevated vacancies and softer rental yields, which influence borrowers’ cash flows.”

Corporate lending remains stable, with healthy repayment metrics even as banks adjust to global shifts affecting manufacturing, construction and trade. Loans to major conglomerates remain diversified and governed by sound credit risk protocols, the BSP added.

Looking ahead to 2026, the BSP said system-wide risk assessments point to the need for continued vigilance as sectoral conditions evolve.

“The uneven recovery in certain commercial real estate segments – particularly those experiencing high vacancies and shifting demand patterns – remains an area of close monitoring,” it said.

Beyond credit risks, cybersecurity has emerged as one of the most significant system-level threats. The BSP warned that threat actors are adopting more sophisticated tools, including artificial intelligence (AI)-enabled scams and deepfake techniques, even as banks’ increasing reliance on cloud services and third-party arrangements expands their digital risk footprint.

“These developments underscore the critical role of governance and robust fraud management systems,” the BSP said, emphasizing the responsibility of boards and senior management in overseeing technology adoption and internal controls.

Broader macroeconomic and structural risks also shape the 2026 outlook. Domestic risks stem from uneven sectoral recovery and ongoing economic adjustments, while external factors such as global interest rate movements, geopolitical tensions and possible changes in outsourcing policies abroad could affect investment flows and borrower performance.

Climate- and nature-related events likewise pose risks to physical assets, collateral valuation and operational continuity across the financial sector.

Preparedness, reforms take center stage

The BSP said its response to evolving risks is grounded in preparedness and a forward-looking regulatory approach.

“Banks maintain capital and liquidity buffers comfortably above regulatory minimum, and we conduct rigorous stress tests to assess resilience under adverse scenarios,” it said.

The central bank is actively enforcing previously issued regulations, including the multi-year Financial Services Cyber Resilience Plan and enhanced fraud-prevention measures under the Anti-Financial Account Scamming Act. Phased operational resilience guidelines are also being implemented to ensure continuity of critical banking functions during cyber, operational or environmental disruptions.

These initiatives are supported by enhancements to supervisory tools, including more risk-focused examinations, thematic reviews as well as expanded use of analytics and Suptech.

Looking ahead, the BSP said stakeholders can expect reforms aimed at reinforcing financial system resilience while keeping regulations relevant amid rapid innovation.

“Strengthening resilience is essential to enhance the capacity of BSP-supervised financial institutions to withstand shocks and to ensure that they can continue to extend credit and deliver vital financial services,” it said.

Regulatory refinements will remain risk-based and proportionate, with focus areas including capital adequacy, risk governance and cybersecurity as technology adoption deepens.

As the country transitions into 2026, the BSP said its message to markets and the public is “one of confidence, vigilance and partnership.”

“We convey confidence because the banking system enters the year from a position of strength, supported by solid capital and liquidity buffers and sound risk-management practices,” it said.

At the same time, the BSP stressed the need for vigilance as domestic and global conditions evolve. “The BSP will continue to provide a steady and reliable anchor for markets and the public,” it said, while encouraging banks to reinforce cybersecurity, operational resilience, credit discipline and governance.

Partnership also remains central to the BSP’s approach. “We reaffirm our commitment to protecting financial integrity, combating fraud and cybercrime, and ensuring that banking remains reliable, inclusive and accessible,” it said.

“In summary: stay vigilant, reinforce resilience and build confidence through strong supervision and open communication,” the BSP added. “Together, we are prepared to support households, businesses and the broader economy in 2026.”