PHL financial system remains resilient but faces ‘moderate’ risks

The country’s financial sector is seen to remain robust and is well-positioned to absorb shocks, the Bangko Sentral ng Pilipinas (BSP) said, but noted external headwinds that pose risk to the sector.

“The Philippine financial system remains resilient but faces moderate risks that warrant close monitoring,” the BSP said in its latest financial stability report.

“The propagation of global uncertainties, including heightened geopolitical tensions, evolving monetary policies in major economies, and potential shifts in the United States following the outcome of the presidential elections could impact the Philippine economy.”

In the report, the BSP said the banking sector growth will be supported by ample buffers and stable financial markets.

“Banks have high capital buffers and ample liquidity, which would allow the financial system to absorb potential losses and/or support economic activity,” it said.

“Financial markets are stable with no signs of asset price misalignments and high share of domestic investor participation.”

The Philippines’ international reserves are also deemed adequate and can cushion the country from shocks, it added.

Latest data showed the country’s dollar reserves rose by 3.3% month on month to $106.65 billion as of end-February. This was also 4.6% higher than $101.99 billion in the same period a year ago.

“On balance, the banking sector remains healthy as characterized by limited endogenous risks or internal weaknesses,” the central bank said.

“Nonbank financial institutions (NBFIs), although small compared with the size of the Philippine banking system, expose banks to common exposure risk through their shared investments and holdings.”

Credit supply is also seen to remain stable amid improved profitability, robust capital base and ample liquidity.

“Although growth is slower than pre-pandemic levels, the banking system is well-positioned to support the domestic economy, with an expansion in its lending portfolio.”

Bank lending jumped by 12.8% to P13.02 trillion in January, its fastest pace in over two years.

INFLATIONARY PRESSURES

However, the BSP flagged global risks such as inflationary pressures and changing economic policies.

It cited the World Uncertainty Index (WUI) and the Global Economic Policy Uncertainty (GEPU) Index, which have been on an upward trend.

“The cost of production materials (especially in the industrial sector) may accelerate due to supply-chain disruptions amid geopolitical instability and lag-effects of global monetary policy easing.”

Primary risk considerations include disruptions in global supply chains and logistics, the BSP said.

Banks also face asset valuation risks, the BSP said, citing elevated nonperforming loans (NPL) and growth in unsecured consumer loans.

The industry’s NPL loan ratio rose to 3.38% in January from 3.27% in December. This was the highest in two months or since the 3.54% in November.

“Recent global uncertainty stems from concerns on geopolitics and economic policies that affect international trade and investment flows.”

“A ‘macro-market disconnect’ — when macroeconomic risks are not properly priced in by market players — could affect asset valuations and may be subject to severe corrections.”

Capital flight is another risk financial markets could face, it added. Foreign investors account for about 46% of trading in the local bourse.

“Portfolio flows reflect investor risk sentiment and translate to FX (foreign exchange) movements. Portfolio investments are vulnerable to outflows.”

Risks also stem from debt servicing and high “maturity walls,” the central bank said.

“Corporate earnings are reverting to pre-pandemic levels. However, increased leverage and sustained funding mismatches especially in large corporates pose vulnerabilities.”

“Significant reliance on bank funding and the degree of interconnectedness among corporates with Domestic Systemically Important Banks (DSIBs) could amplify risks to the financial sector,” it added.

The BSP said the “interconnectedness of large conglomerates to the banking system may expose the financial system to risks coming from the corporate sector given increasing leverage and funding mismatches.”

The sector also faces emerging risks from financial technology such as artificial intelligence adoption.

“While innovations can enhance efficiency and financial inclusion, the increasing influence of technology also introduces new challenges, such as cybersecurity threats, operational risks, system failures or algorithmic errors, and biases that could undermine regulatory compliance.”

Meanwhile, the BSP noted further monetary easing, which would also bolster the financial system’s growth.

“The transition towards an accommodative interest rate environment could encourage investment in capital-intensive projects, business expansion, and household consumption.”

“Looser financing conditions could pave the way for enhanced credit availability for businesses and consumers to ramp up investments and rebuild savings as buffer to shocks.”

The BSP began its easing cycle in August last year, cutting rates by a total of 75 basis points (bps) by end-2024.

Despite delivering a pause last month, the central bank has said it is still on an easing trajectory. BSP Governor Eli M. Remolona, Jr. has signaled the possibility of a 25-bp cut at the Monetary Board’s meeting on April 10.

“Priority measures could enhance the stability and resilience of the Philippine financial system if aligned with monetary policy and banking supervision,” the BSP said.

It also called for the further enhancement and deepening of capital markets; improvement of reporting frameworks; and development and adoption of macroprudential tools.

Source: Business World

Philippines needs 9-9.5% growth to return to pre-pandemic track

The economy needs to grow by at least 9% to 9.5% a year until 2028 to return to its pre-pandemic growth track, a former Bangko Sentral ng Pilipinas (BSP) official said.

During the MAP Economic Briefing and General Membership Meeting, GlobalSource Partners analyst Diwa C. Guinigundo said that the current government’s target of “between 6% to 8% annually, by 2036 (the Philippines) should be reaching only P60 trillion.”

“To overcome this setback, growth will have to be between 9% to 9.5% through 2028 to be able to return to the original growth path,” he said.

Last year, Mr. Guinigundo pushed for targets of 9.4% growth.

The Development Budget Coordination Committee (DBCC) on December trimmed the economic growth estimate for this year to 6-6.5% but widened the target band to 6-8% until 2028, due to “evolving domestic and global uncertainties.”

Finance Secretary Ralph G. Recto described as “doable” growth of between 6% and 6.5%.

In 2024, the economy expanded by 5.6%, following a 5.5% reading in 2023. It fell short of the government’s revised 6-6.5% target.

“We grew by only 5.5% in 2023 and 5.6% last year. Of course, we take pride in saying Philippine growth performance surpassed the global average in 2022 and 2023 of 3.5% and 3.3% respectively,” he said. 

“But we had the economy stall in 2020 and the years following that, so we have a lot of catching up to do.”

Mr. Guinigundo said risks to the economy include fiscal and debt sustainability, with revenue effort remaining low, food security issues, and political disunity.

“Since the Trump policy of tariff increases and tax cuts are potentially inflationary, we don’t expect the Fed to be very aggressive in reducing the target interest rate,” he added in his presentation.

“With the BSP having the space to further ease monetary policy, we see a potential capital outflow, peso depreciation, and therefore, the resurgence of inflation.”

Mr. Guinigundo noted that the budget deficit, which narrowed to P1.506 trillion in 2024, remains  in the “trillion mark.”

He said improved tax administration can only yield much, as can “squeezing” state-run firms for more dividends.

“This is after Congress forced the split banks and other GOCCs to continue to the Maharlika Investment Fund. No wonder, from the pre-pandemic (debt) of $7.7 trillion, we saw the crisis ending at $16 trillion. In January 2025, $300 billion was added to National Government debt,” he said.

Source: Business World

Banks’ real estate loans climb to 19.8% in 2024

The exposure of Philippine banks and trust entities to the volatile property segment inched up to 19.8 percent of total loans in end-December 2024 amid the sustained expansion of property-related lending despite economic uncertainties.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that banks’ real estate exposure went up from 19.6 percent in end-September last year. It marked the highest level in two months or since the 19.9 percent as of end-June 2024.

Investments and loans extended by the banking industry to the property sector stood at P3.31 trillion in end-2024, 5.1 percent higher than the P3.15 trillion seen a year ago.

Lending rose by 7.7 percent to P2.95 trillion in 2024 from P2.74 trillion in 2023. Commercial real estate loans rose by 6.9 percent to P1.85 trillion, while residential real estate loans grew by 10 percent to P1.1 trillion.

Past due real estate loans inched up by four percent to P140.65 billion. This came after past due commercial real estate loans edged higher by 2.3 percent to P40.92 billion, while past due residential real estate loans increased by 4.7 percent to P99.73 billion.

The gross non-performing loans (NPLs) of banks from the real estate sector stood at P108.81 billion as of end-December last year, 0.4 percent higher than the P108.39 billion in the comparable year-ago period.

Despite the increase in NPLs, the gross non-performing loan real estate ratio went down to 3.68 percent in end-2024 from 3.96 percent a year ago.

Meanwhile, real estate investments in debt and equity securities fell by 13.8 percent to P353.81 billion from P410.65 billion the previous year.

To ensure that banks’ exposure to the property sector remains manageable, the BSP continues to maintain prudential measures, including the real estate limit.

These measures also include the heightened surveillance of banks’ real estate and project finance exposures, and the real estate stress test thresholds for universal and commercial banks as well as thrift banks.

At the height of the global health crisis, the BSP raised the real estate loan limit of big banks to 25 percent from 20 percent in August 2020 to free up P1.2 trillion in additional liquidity for lending amid the uncertainties brought about by the pandemic.

BSP data showed that the Residential Real Estate Price Index slipped by 2.3 percent to 163.9 in the third quarter from 167.7 in the same quarter last year. This was the first time the index contracted since the 9.4 percent decline in the second quarter of 2021.

Source: Philstar