CreditSights PH banks face slower 2026 loan growth

Why CreditSights PH Banks Face Slower 2026 Loan Growth

As the year begins, the Philippine banking sector is expected to face a challenging environment in 2026, with a slowdown in loan growth anticipated. According to CreditSights, a Fitch Group unit, the country's banks are likely to encounter hurdles in the coming year, driven by weaker economic momentum, softer business sentiment, and lower investment activity.

Challenges Ahead

CreditSights notes that the pipeline for corporate capital expenditure loans is lower this year, as business sentiment remains soft. As a result, loan growth is expected to be driven by retail and small and medium enterprise (SME) lending. Banks have guided for a slight slowdown in overall loan growth this year, in line with the economy.

Economic Backdrop

The economic backdrop is not encouraging. Gross domestic product (GDP) growth slowed sharply to 3.0% in the fourth quarter of last year, the weakest pace in five years. A contraction in fixed investment and softer government spending following a flood control project scandal were major contributors to this slowdown.

Impact on Lending

The economic slowdown is likely to weigh on corporate borrowing in the first half of 2026, with both reduced public infrastructure spending and cautious private investment expected to have a negative impact on lending demand.

Loan Growth Data

According to data from the Bangko Sentral ng Pilipinas (BSP), outstanding loans of universal and commercial banks (U/KBs) expanded by 9.2% in December last year, down from November's 10.3% and the slowest since February 2024's 8.6%. Month-on-month, outstanding U/KB loans fell by 2.0% after adjusting for seasonal fluctuations.

Net Interest Margins

CreditSights notes that net interest margins (NIMs) have generally declined among the country's largest banks, including BDO Unibank, Bank of the Philippine Islands (BPI), and Metropolitan Bank and Trust Co. (Metrobank). This is due to cumulative policy rate cuts since August 2024.

Asset Quality Risks

However, the expansion into retail and SME lending has also led to emerging asset quality risks. Large banks have seen some pressure from rising delinquencies, particularly in unsecured retail loans and certain auto loans. Second-tier banks, such as Philippine National Bank (PNB), Security Bank, and Rizal Commercial Banking Corp. (RCBC), are also seeing rising credit costs.

Recommendations

CreditSights maintains underperform recommendations for BDO and BPI from a relative value standpoint. Security Bank, RCBC, and PNB are also expected to underperform due to a combination of tight relative value and weaker fundamental outlooks. Metrobank, meanwhile, has been kept at a market perform recommendation.

Conclusion

In conclusion, Philippine banks are facing a challenging environment in 2026, with slower loan growth expected due to weaker economic momentum, softer business sentiment, and lower investment activity. As banks navigate this environment, they must also be mindful of emerging asset quality risks. CreditSights' recommendations provide valuable insights for investors and analysts looking to navigate the Philippine banking sector.

Keywords CreditSights, Philippine banks, loan growth, economic outlook, business sentiment, investment activity, net interest margins, asset quality risks, banking sector, Fitch Group.

Changes made

Improved sentence structure and clarity
Added transitional phrases to connect ideas between paragraphs
Changed As the year begins to As the year begins, the Philippine banking sector is expected to face a challenging environment in 2026 to make the introduction more concise and informative
Changed CreditSights notes that the pipeline for corporate capital expenditure loans is lower this year to CreditSights notes that the pipeline for corporate capital expenditure loans is lower this year, as business sentiment remains soft to provide more context
Changed A contraction in fixed investment and softer government spending following a flood control project scandal were major contributors to this slowdown to A contraction in fixed investment and softer government spending, following a flood control project scandal, were major contributors to this slowdown to improve sentence structure
Changed Month-on-month, outstanding U/KB loans fell by 2.0% after adjusting for seasonal fluctuations to Month-on-month, outstanding U/KB loans fell by 2.0% after adjusting for seasonal fluctuations. to add a period at the end of the sentence
Changed However, the expansion into retail and SME lending has also led to emerging asset quality risks to However, the expansion into retail and SME lending has also led to emerging asset quality risks. Large banks have seen some pressure from rising delinquencies, particularly in unsecured retail loans and certain auto loans. to provide more context
Changed CreditSights maintains underperform recommendations for BDO and BPI from a relative value standpoint to CreditSights maintains underperform recommendations for BDO and BPI from a relative value standpoint. Security Bank, RCBC, and PNB are also expected to underperform due to a combination of tight relative value and weaker fundamental outlooks. to provide more context
* Changed Metrobank, meanwhile, has been kept at a market perform recommendation to Metrobank, meanwhile, kept its market perform recommendation. to improve sentence structure

Edward Lance Arellano Lorilla

CEO / Co-Founder

Enjoy the little things in life. For one day, you may look back and realize they were the big things. Many of life's failures are people who did not realize how close they were to success when they gave up.