Philippine banks face slower loan growth as higher rates weigh on demand

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Philippine banks face slower loan growth

Highlights

Philippine banks anticipate slower credit growth as higher rates and a cautious economic outlook dampen both borrower demand and lender appetite.
UnionBank improved its nonperforming loan ratio to 2.9% from 6.56% and NPL coverage to 75.77%, while net income surged 53% to P9.9 billion for January–September.
Banks are prioritizing asset quality with selective loan expansion and increased provisioning in response to elevated inflation and household pressure.

Bank lending outlook and UnionBank strategy

As reported by BusinessWorld Online, Bankers Association of the Philippines President and Union Bank of the Philippines President and Chief Executive Officer Ana Maria Aboitiz-Delgado says banks are bracing for slightly slower credit expansion as both lenders and clients turn more cautious. She says the slowdown reflects not only tighter bank behavior but also a wait-and-see approach among borrowers as the economy remains soft.

Ms. Aboitiz-Delgado says some loan segments are showing signs of stress after the Bangko Sentral ng Pilipinas' cumulative rate hikes since April, although parts of the corporate market remain resilient. She adds that banks are positioning to support broader economic growth once clearer signs of stability emerge.

For UnionBank, she says margin expansion has been supported by loan volumes and higher rates, but the bank remains careful about growth to protect asset quality. She says consumer lending is still expanding well, while overall growth is slowing partly by design and partly because demand is currently limited.

Asset quality focus shapes sector impact

UnionBank says it will continue expanding its retail business while raising nonperforming loan cover to guard against possible asset quality risks tied to elevated inflation and pressure on households. Ms. Aboitiz-Delgado says the bank is not planning a broad pullback, though any visible deterioration could affect that stance.

The bank's nonperforming loan ratio stands at 2.9% at end-September, improving from 6.56% a year earlier, while NPL coverage rises to 75.77% from 69.65%. Its net income for the first nine months jumps 53% year on year to P9.9 billion, helped by stronger margins and fee income.

The figures suggest Philippine banks are entering a period in which loan expansion remains positive but is likely to be more selective across segments. Higher borrowing costs and a weaker economic outlook are pushing lenders to balance growth targets with stronger provisioning and balance sheet protection.

Our earlier coverage of the Philippines’ planned sovereign bond market reforms explained how a new pricing convention for peso government bonds and expected inclusion in J.P. Morgan’s Government Bond Index-EM could improve liquidity and broaden the investor base, but won’t automatically translate into stronger productive investment. We also noted that corporate capital markets remain shallow and costly—leaving many firms reliant on bank credit—so broader structural and market-development reforms are needed for cheaper funding to reach businesses in a meaningful way.

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