Philippine banks’ profit growth may slow on narrowing margins
PHILIPPINE BANKS’ profit growth could slow down this year as the interest rate environment normalizes and with geopolitical risks adding more uncertainty to already gloomy economic prospects.
“Universal banks should continue to post positive earnings in 2026 but at a more moderate pace as loan growth cools and interest margins compress with potential policy easing,” Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera added in a Viber message.
“Increasing global volatility due to geopolitical tensions or US policy shifts can affect Philippine banks indirectly via capital flows, forex (foreign exchange) volatility, and investor sentiment.”
Latest Bangko Sentral ng Pilipinas (BSP) data showed that the banking sector’s net income rose by 3.648% to P405.606 billion in 2025 from P391.33 billion in 2024.
Mr. Rivera said this growth was mainly supported by higher net interest earnings, lower loan loss provisions amid stable asset quality, and fee income from banks’ transactional and wealth management services.
The biggest gainers were those with strong retail and payments franchises, diversified fee streams, and controlled cost bases, he added, as these names are already experienced in balancing their consumer and corporate loan portfolios.
The country’s three largest private banks in asset terms, namely, BDO Unibank, Inc., Metropolitan Bank & Trust Co. (Metrobank), and Bank of the Philippine Islands (BPI), posted record profits in 2025 despite increasing competition in the industry, First Metro Investment Corp. Head of Research Cristina S. Ulang said in a Viber message.
BDO’s attributable net income climbed by 6.28% year on year to P87.17 billion in 2025, while Metrobank’s profit rose by 3.29% to P49.72 billion, and BPI’s earnings increased by 7.4% to P66.62 billion.
CONSUMER PUSH
Banks will likely continue to expand their consumer lending business this year as the segment remains largely untapped, April Lynn C. Lee-Tan, chief equity strategist at COL Financial Group, Inc., said in a Viber message.
She said there could be an increase in the industry’s nonperforming loans (NPL) as they grow their retail segments as these sectors are naturally riskier but offer better margins.
“Consumer expansion is likely to remain a focus, especially in mortgages and auto loans, but lenders will be more cautious and selective given credit risk considerations. Aggressive consumer targeting may continue in niches where credit scoring and digital engagement reduce risk, but broad-based rate wars are less likely,” Mr. Rivera added.
“Improvement in asset quality seen in 2025 with NPL ratios near multi-year lows should broadly persist, but pressures could emerge if growth remains soft and certain segments (micro, small, and medium enterprises and unsecured credit) slow or reprice. Prudent risk management and early intervention frameworks will be key to keeping NPLs contained through 2026.”
Ms. Ulang likewise said that asset quality will likely remain stable this year as lenders stay cautious due to lingering domestic and external risks.
Ms. Tan said credit and profitability risks could stem from escalating geopolitical concerns as the conflict in the Middle East could drive up oil prices and the US dollar.
“That would lead to higher inflation and hurt consumers. The peso could also weaken as investors turn risk averse and shift to safe-haven assets like gold, the US dollar and US bonds,” she said.
“A stronger US dollar can put pressure on the Philippine peso and increase hedging costs, while risk-off episodes can dampen investment and corporate borrowing,” Mr. Rivera added. “But the sector’s strong capital base, predominantly domestic funding, and relatively low direct foreign risk exposure mean that Philippine banks are generally well-positioned to absorb external shocks, even if volatility continues.”
Last month, the Monetary Board delivered a widely expected 25-basis-point (bp) cut for the sixth consecutive meeting, bringing the policy rate to 4.25% to support domestic demand as the country deals with the economic fallout from a corruption scandal that has affected consumer and investor confidence.It has now lowered benchmark borrowing costs by a total of 225 bps since it began its easing cycle in August 2024.
BSP Governor Eli M. Remolona, Jr. has said that they are open to supporting growth through monetary policy as long as easing does not cause inflation.
However, he said that they are now less certain about the policy path ahead despite a manageable inflation outlook, adding that rate cuts may not be enough to boost the economy amid lingering governance concerns.
Analysts have said that oil supply disruptions due to the widening conflict in the Middle East could stoke domestic inflation anew and give the BSP less space for further rate cuts. — Aaron Michael C. Sy
