Relief measures for Philippine borrowers hit by the ongoing Middle East conflict may steady credit conditions but are likely to trim banks’ profitability, according to an April 16 report by S&P Global Ratings.
In its briefing, “Philippine Banking Brief: War Relief Measures Could Dampen Profitability,” the agency said temporary regulatory relief—led by the Bangko Sentral ng Pilipinas—could ease financial strain on households and firms facing higher energy costs and supply-chain disruptions. The central bank has suspended certain loan repayments, giving borrowers short-term breathing room as global uncertainties persist.
S&P credit analyst Nikita Anand noted that while the policy supports borrowers’ cash flows, it may pressure lenders’ earnings. Net interest margins are nearing their peak, limiting upside, while credit costs remain elevated amid a still-fragile operating environment.
The trade-off is deliberate. By cushioning borrowers, banks may avert a sharper rise in nonperforming loans (NPLs), which could otherwise accelerate if liquidity strains intensify. S&P’s base-case scenario assumes asset quality will remain broadly stable, citing Philippine banks’ limited direct exposure to sectors most vulnerable to the conflict.
Still, risks skew to the downside if the war drags on. Mid-sized corporates, small enterprises, and lower-income households are seen as most exposed to second-round effects such as persistently high fuel prices and disrupted trade flows—factors that could gradually lift bad loans.
Despite these headwinds, the sector enters the period from a position of strength. Robust earnings in 2024, solid capital buffers, and ample liquidity provide capacity to absorb shocks.
Even so, the outlook hinges on external developments. With commodity prices and supply chains in flux, S&P said credit conditions will require close monitoring as risks evolve.
