Banking Industry Country Risk Assessment: Philippines

We use our BICRA economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating. The anchor for banks operating only in the Philippines is 'bbb-'. The trend for economic risks that banks in the Philippines face is stable, in our opinion. The banking sector will benefit from stable macroeconomic and employment conditions. A moderate increase in NPLs from highly indebted low-income borrowers is likely due to elevated interest rates. The sector's good capital position (15.5% Tier 1 capital ratio as of Dec. 31, 2023) and provisioning will cushion any unexpected losses. Sectorwide profitability will benefit from higher-for-longer interest rates, and return on assets will start to moderate from 2025 onward

...Banks in the Philippines face high economic risks despite moderate debt in the private sector. Low incomes and a weak legal framework for creditors in the Philippines elevate credit risk for lenders. We see good growth prospects for the Philippine economy over the next couple of years. However, the banking sector's nonperforming loan (NPL) ratio is likely to increase moderately given sustained elevated interest rates will affect highly indebted low-income borrowers. Credit costs should remain stable because banks have adequate provisioning buffers against a moderate rise in credit stress....

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