High energy prices, persistent inflation, rising interest rates and tighter underwriting standards are expected to weigh on credit growth in the Philippines, according to SandP Global Ratings.
In a report on Tuesday, the credit rating agency said prospects for credit growth in the Philippines are ‘deteriorating’ because of higher inflationary pressures and weaker economic conditions.
SandP Global made this pronouncement after it conducted stress tests on the Philippine banking sector.
The credit rating agency noted that slower credit growth is ’emerging’ across all segments of the Philippine economy.
‘Persistent inflation, rising interest rates, and tighter underwriting standards at a time when economic growth is decelerating are behind this,’ SandP Global said.
It noted that the annualized credit growth slowed to approximately 7 percent in the first half, from 10 percent in 2025 and 13 percent in 2024.
‘Two macroeconomic factors are driving deceleration: higher energy prices and reduced government spending,’ SandP Global said.
The Middle East conflict and a lack of subsidies that have pushed up prices for fuel and gas have compounded the woes of consumers, it added.
SandP Global also noted that government spending has weakened because of ongoing investigations into flood control projects.
As such, the credit rating agency said the next few months will remain ‘challenging’ for banks.
‘Recovery in 2027-2029 will be driven by inflationary pressures easing and public and private spending rebounding, in our view,’ said SandP Global.
The credit rating agency forecasts loan growth to ‘stabilize’ at 7 to 8 percent in 2026 before accelerating to 9 to 10 percent over the following two years.
In particular, it said the recovery will be led by consumer loans (23 percent of total loans) and fueled by stronger growth in unsecured lending, it added.
Meanwhile, the credit rating agency said weak loans will rise to 6 to 7 percent of outstanding loans over the next two years, up from 5.6 percent in June 2026.
While aggregate levels of weak loans remain ‘manageable,’ SandP Global said: ‘Stress is emerging in the auto, credit card and personal loan segments.’
‘Our analysis of loans that are 30 days overdue on repayments also indicates elevated stress in in these segments,’ it added.
SandP Global also flagged the ‘rapid expansion’ of unsecured lending, which it said is facing its ‘first true asset quality test.’
‘Such loans surged from 5 percent of total loans in 2019 to 11 percent by the end of 2025,’ it said.
Auto, business loans
SandP Global said the Philippines recorded a sharp slowdown in growth due to the lack of broader fuel subsidies which has resulted in a ‘massive jump’ in fuel prices.
‘Auto loans are seeing a sustained increase in NPLs [nonperforming loans] and past due loans, reflecting the squeeze in household incomes centered on mass market consumers,’ it added.
However, ‘incremental’ growth in auto loans is being largely driven by electric vehicles, where it said the borrower profile is ‘more affluent.’
The credit rating agency also flagged the construction sector, whose past due loans doubled to 16.5 percent by June 2026.
‘A suspension in government works following the discovery of irregularities in flood control projects and input cost inflation related to conflict in the Middle East contributed to the weakness.’