Philippine bank lending growth seen slowing into 2027 as rates stay elevated

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PH bank lending outlook 2027

Highlights

Philippine bank lending growth is projected by BMI to slow to 9.0% by end-2027, despite a 2026 forecast increase to 10%.
The Bangko Sentral ng Pilipinas is expected by BMI to raise the policy rate by 25 basis points to 5.25% at its Oct. 22 meeting, compounding tighter financial conditions and higher bond yields.
BMI warns muted consumer loan growth and tighter lending standards will persist amid sustained inflation and possible asset quality deterioration, though construction sector lending may rebound as delayed projects resume.

Credit outlook and policy pressure

As reported by BusinessWorld, citing BMI, lending growth in the Philippines is likely to slow toward yearend before easing further to 9.0% by end-2027, even after the Fitch Solutions unit raised its 2026 forecast to 10% from 8.5%. BMI says bank lending has so far held up better than expected, but tighter financial conditions are increasingly set to damp demand.

BMI says weak economic activity and interest rate hikes by the Bangko Sentral ng Pilipinas are expected to weigh on credit growth more visibly in the coming months. The Monetary Board in August raised the benchmark rate by 25 basis points to 5% in a preemptive move against inflation risks linked to the severe El Niño episode, wage hikes and global oil price swings.

The research unit also expects the BSP to deliver another 25-basis-point increase at its Oct. 22 meeting, which would lift the key policy rate to 5.25% and bring cumulative hikes to 100 basis points. BMI says the effects of earlier easing are fading, while bond yields have risen steadily across the curve since the start of the U.S.-Iran conflict, adding to borrowing costs.

Latest BSP data show universal and commercial banks' total outstanding loans, net of reverse repurchase agreements, rose 11% year on year to P15.121 trillion at end-August from P13.618 trillion. That is faster than July's 10.4% growth and marks the quickest expansion in three months, since 12.1% in May.

Consumer strain and asset-quality risks

BMI says sustained increases in consumer prices and borrowing costs are likely to keep consumer loan growth muted until next year, with household appetite for new credit already showing signs of moderation. Elevated energy and food prices are expected to erode purchasing power further, reinforcing weaker demand for loans.

At the same time, the report says banks may tighten lending standards to limit any deterioration in credit quality, which could deepen the slowdown in overall credit growth. BMI adds that Philippine banks could face a jump in bad loans as inflation accelerates and labor market conditions worsen, squeezing borrowers' ability to service debt.

The construction segment could offer some support as lending to the sector is expected to recover after contracting since December 2025. BMI says the flood control corruption probe slowed public capital expenditure and curtailed loan approvals, but lending may start to pick up as scrutiny eases and delayed projects resume.

Even so, BMI says financial stability risks remain under control despite a likely deterioration in loan quality and a tepid economy. It notes, however, that the declining capital adequacy ratio warrants monitoring.

Our earlier coverage focused on rising inflation and global oil prices driving expectations that the Bangko Sentral ng Pilipinas could raise its benchmark rate by 25 basis points to 5.25% at the Oct. 22 meeting. We also outlined how persistent price pressures and peso volatility could keep the BSP biased toward additional tightening to anchor inflation expectations.

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