Philippines financial risks steady, says IMF

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December 31, 2025 | 12:00am

MANILA, Philippines — Overall systemic financial risks in the Philippines remain moderate and broadly unchanged from last year, with the banking system continuing to show strength amid lingering pockets of vulnerability, according to the International Monetary Fund (IMF).

In a report, the IMF said the banking system is well-capitalized, liquid and profitable, supported by generally conservative lending standards and a stable deposit base.

The IMF also noted that overall credit growth remains healthy and “the credit gap remains closed,” pointing to a financial system that has so far absorbed domestic and external shocks without significant strain.

However, the IMF cautioned that several vulnerabilities warrant close monitoring, particularly in the real estate and household sectors.

“Commercial and residential vacancy rates remain persistently high in some regions and segments, reflecting still-elevated mortgage rates, supply overhang from the pre-pandemic construction boom and the exit of Philippine offshore gaming operators (POGOs) in Metro Manila,” it said.

Despite these conditions, the IMF observed that residential real estate prices and loan growth have remained resilient, even as the residential real estate non-performing loan ratio reached 6.4 percent as of end-June.

Household debt is another area of concern. The IMF said debt levels have been buoyed by robust growth in real estate loans, rapid expansion in bank credit card and salary loans, as well as increased credit access through non-bank financial institutions (NBFIs) and digital finance.

It also flagged rising banks’ exposure to the public sector since the pandemic and lingering corporate sector weaknesses. While the share of firms with low debt servicing capacity has declined, it “remains higher than pre-pandemic levels.”

Earnings in the manufacturing sector have been weak, and the soundness of manufacturing and wholesale and retail loans, which account for approximately 19 percent of domestic loans as of end-August 2025, could be affected by adverse global trade developments.

Interconnectedness between banks and corporates, including through complex conglomerate structures, may also expose the financial system to risks. NBFIs, some of which are not supervised by the Bangko Sentral ng Pilipinas (BSP), remain relatively small but have expanded their lending activities to include real estate, consumer loans as well as micro, small and medium-sized enterprises.

Against this backdrop, the IMF said enhancing the macroprudential policy framework should remain a priority.

The BSP is making progress in developing tools and reducing data gaps to support macroprudential decisions, and is refining the framework for the countercyclical capital buffer with the assistance of the IMF.

“These efforts should be accelerated to ensure timely and appropriate calibration of macroprudential policies,” the IMF said, noting that as monetary policy eases and investment picks up, credit demand may rise.

It also recommended replacing the cap on commercial real estate exposures with a sectoral systemic risk buffer to better capture broader real estate risks, while ensuring no unintended changes in the overall macroprudential stance.

Regarding emerging risks, the IMF said the expansion in crypto-asset adoption necessitates robust regulation. Given heightened risks, the BSP extended its moratorium on granting new licenses for virtual asset service providers for an indefinite period in August.

The central bank is also exploring use cases for a wholesale central bank digital currency, including settling tokenized government bonds and enhancing cross-border payments, with IMF technical assistance.

Authorities, for their part, said financial sector vulnerabilities are well-contained. Stress tests conducted by the BSP confirm that banks have sufficient capital buffers to absorb potential asset quality deterioration, including in the real estate, household and manufacturing sectors.

The BSP acknowledged limitations in monitoring consumer credit provided by lending companies outside its supervisory scope, but said implementation discussions are underway following its expanded legal authority. An outstanding bill proposing the transfer of the national credit bureau to the BSP is expected to further strengthen oversight.

Regarding crypto assets, authorities noted that their primary usage is for remittances and investment. Anti-money laundering and combating the financing of terrorism risk assessment of virtual assets will be included in the ongoing National AML and CFT Risk Assessment.