‘Philippines banks poised to anchor 2026 market recovery’

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December 3, 2025 | 12:00am

MANILA, Philippines — Philippine banks are expected to lead the stock market’s rebound next year as lower policy rates, steady asset quality and attractive valuations position the sector for resilient earnings, according to J.P. Morgan.

In its sector outlook, J.P. Morgan analysts Daniel Andrew Tan and Harsh Modi said the bottom-up view for banks remains steady, supported by a manageable credit environment and continued volume growth led by the country’s largest lenders.

“The Bangko Sentral ng Pilipinas is on a rate cut cycle (175 basis points cuts from peak, with 75 basis points more expected), but transmission to net interest margin (NIM) is lower due to a combination of mix shift, reserve requirement cuts and competitive environment,” they said.

Loan growth may see “modest downside” because of weaker macro conditions, but large banks “should be able to maintain low double digit volume growth.”

Consumer and credit card non-performing loans (NPLs) remain contained, while two of the country’s top banks, BDO Unibank Inc. and Metropolitan Bank Trust & Co. (Metrobank) “have excess coverage buffers.”

J.P. Morgan estimates return on equity at about 14 percent for both BDO and the Bank of the Philippine Islands (BPI).

While political and economic concerns have weighed on sentiment, the easing of these issues “will be key to drive re-rating.” J.P. Morgan added that lower-than-expected NIM impact from rate cuts “suggests the likelihood of a positive surprise.”

The investment bank is watching several catalysts, including the impact of political developments on the investment cycle, potential reserve requirement and rate cuts, shifts in payments “post launch of Google Pay and possibility of zero fees” as well as any changes in consumer or corporate asset quality.

BDO remains its top banking pick due to “positive risk-reward,” high NPL coverage and consistent earnings visibility. BPI offers “higher growth in consumer” and stronger NIMs, though provisions may rise.

The firm holds a neutral view on Metrobank amid expected loan growth slowdown, while Security Bank Corp. offers value at 0.3 times forward book as it undergoes a potential turnaround.

In terms of its outlook for the country’s property sector, the bank expects a turn in residential demand drivers by 2026, with middle-income outperforming luxury and upscale markets.

J.P. Morgan analyst Jelline Gaza said affordability “repair from price cuts and attractive rent-to-own promos will drive a sustained recovery in mid-market demand.” Political noise and slower economic growth will remain headwinds for high-end developers.

The bank reiterated an overweight call on Ayala Land and Megaworld. It holds a neutral view on SM Prime Holdings and Robinsons Land, while Filinvest Land stays underweight.

Meanwhile, a risk-off environment amid slowing growth is benefiting the defensive utilities sector, supported by an “amicable regulatory backdrop” that should ensure timely tariff decisions. JPMorgan expects power and water demand to normalize to four percent and two percent annual growth, respectively.

For power, J.P. Morgan prefers distribution utilities over generation, projecting compression in generator margins due to a 10 to 15 percent drop in spot prices next year and repricing of retail electricity contracts as solar supply expands. Solar capacity is expected to quadruple by 2027, driving displacement in day and nighttime prices.

In water, investors should monitor M&A activity and the scale of upcoming tariff hikes, especially with delays in the Kaliwa Dam project.

Manila Electric Co. remains the sector’s top pick. Aboitiz Power is kept at neutral due to declining generation margins, while ACEN also remains neutral.

Manila Water stays neutral as J.P. Morgan prefers to “wait on the sidelines” due to earnings drag from the Wawa Dam acquisition and limited balance sheet headroom.

The bank also expects a more constructive backdrop for Philippine telcos as competition eases and tariff hikes reintroduce pricing power.

Analyst Ranjan Sharma said operators show “high operating and financial leverage” during tariff increases, which supports earnings growth.

J.P. Morgan remains overweight on Globe and PLDT, citing sector consolidation prospects that could “reflate average revenue per user” and optimize capital spending.