The Philippine banking sector closed 2024 on a high note, demonstrating “generally strong” loan growth in the fourth quarter that was fueled by a resurgence in capital expenditure, according to a recent report by CreditSights.
However, this positive momentum is tempered by rising concerns over non-performing loans (NPLs), particularly among certain major banks.
CreditSights says most banks experienced a robust 6% to 9% QoQ loan growth in 2024
CreditSights revealed that most banks experienced a robust 6% to 9% quarter-on-quarter (QoQ) loan growth, signaling a healthy appetite for investment and expansion within the Philippine economy. Notably, this growth was slightly subdued for banking giants BDO, Union Bank of the Philippines (UBP), and Philippine National Bank (PNB).
The report highlighted that the revival of capital expenditure played a pivotal role in driving this loan expansion. This surge in investment reflects growing business confidence and a positive outlook for the Philippine economy.
However, even though Philippine banks saw a surge in lending in 2025, the sector’s performance was not without its challenges.
PH banking sector and rising NPL concerns
Net interest margins (NIM) presented a mixed picture, primarily due to the central bank’s rate cuts initiated in August. While these cuts aimed to stimulate economic activity, they also impacted the profitability of some banks.
Asset quality within the first-tier banking institutions remained relatively stable throughout the fourth quarter, reflecting the increasing consumer lending activities observed throughout the fiscal year 2024. However, a closer look reveals a growing concern regarding NPL ratios.
The Bank of the Philippine Islands (BPI) reported a notable increase in its NPL ratio, reaching 2.13%, a 29 basis point (bp) rise compared to the same period in 2023. Metrobank also experienced a surge in credit costs, increasing by 62 basis points in the second half of the year.
The situation appears more pronounced among second-tier banks. CreditSights had previously warned of potential asset quality challenges due to their rapid growth pace and strategic direction. RCBC’s NPL ratio saw a significant 57 bp QoQ increase.
Furthermore, credit costs for both RCBC and UBP spiked by over 100 bp in the fourth quarter. Security Bank, while also facing increased credit costs, managed to keep them relatively contained at 98 bp.
Mixed quarter for PH finance as NPLs rise, banks maintain liquidity
Despite these NPL concerns, the Common Equity Tier 1 (CET1) ratios of major banks such as BDO, Metrobank (MBT), UBP, and PNB remain comfortably within regulatory requirements. However, BPI, RCBC, and Security Bank (SECB) have seen their CET1 ratios slightly impacted by brisk risk-weighted asset (RWA) growth, as anticipated by CreditSights.
Liquidity metrics across the banking sector remain healthy, providing a buffer against potential financial shocks. However, the rise in NPLs necessitates careful monitoring and proactive risk management strategies.
The increase in NPLs, particularly among consumer loans, indicates potential vulnerabilities within the broader economy. Factors such as rising inflation, fluctuating interest rates, and potential economic slowdowns could exacerbate these challenges.
The Philippine banking sector’s performance in the fourth quarter of 2024 paints a picture of resilience and growth, but also highlights the importance of vigilance. As the economy continues to navigate evolving market conditions, banks must prioritize robust risk management practices to ensure long-term stability and sustainable growth.
The sector will need to carefully balance the pursuit of loan growth with the imperative of maintaining asset quality.