Sticky Philippine loan rates blunt impact of central bank cuts

The Philippine central bank has slashed its key policy rate by almost two percentage points to 4.75% since last year, but the price of a home loan from the nation’s top banks has barely budged.

BDO Unibank Inc. charges a 6% fixed rate on new housing loans for the first year, with the debt then subject to repricing, or else 6.5% fixed for five years. That’s roughly the same as the minimum offered in 2024, and rates at Bank of the Philippine Islands and Metropolitan Bank & Trust Co. show a similar trend.

Examples of home loan rates November 2025

Across Asia, as policymakers have reduced benchmark rates to support economic growth in the face of US tariffs, there’s evidence that banks aren’t fully passing on the cuts to consumers, according to Australia and New Zealand Banking Group. In the Philippines’ case, the stickiness of borrowing costs may prolong a slump that’s left its economy trailing Indonesia and China in growth.

Philippine commercial banks’ average lending rate, after dipping earlier in the year, hit 8.132% in August, up from 8.097% at the end of last year, Bangko Sentral ng Pilipinas data show. That’s as the benchmark has been cut 175 basis points since August last year.

For Philippine lenders, there’s little incentive to cut interest rates when a scandal over government graft has rocked confidence, threatening more bad loans. Demand is also weak: growth in household consumption, which accounts for more than 70% of the nation’s output, hit a four-year low in the three months through September as consumers held off spending.

“There’s this corruption scandal. Liken it to a toothache – the rest of the body feels it because everything is connected,” said Jonathan Ravelas, managing director at eManagement for Business and Marketing Services, a Manila-based consultancy. “Banks are cautious because of the economic outlook. It challenges jobs.”

“Banks are exercising prudent credit underwriting, particularly in consumer segments, to mitigate non-performing loan risks,” the Bangko Sentral ng Pilipinas said in response to questions.

It noted that a survey of bank loan officers showed most expect tighter lending standards for households in the current quarter, “citing a deterioration in portfolio profitability, a less favorable economic outlook, reduced risk tolerance, and weakening borrower profile.”

To be sure, total loans are still gaining, rising 10.5% in September from a year earlier, down from 12.2% at end-2024. And banks have eased up in some ways, with mortgage incentives including lower downpayments; waivers of application, registration and appraisal fees; or free insurance for the first year.

“We’re cautiously optimistic about where lending rates are headed. In the near term, we expect them to hold steady or dip slightly,” said Maria Cristina Go, head of consumer banking at BPI, one of the biggest in the country. “This will depend not only on the policy rates that will impact funding costs but will also consider inflation trends and asset quality.”

BDO Unibank said it expects lending rates for this year and the next two years to be “generally in the same range given current economic conditions.” And BSP data shows the rate at which banks lend to each other is declining.

The BSP says data shows lending rates “generally moved in line” with policy rate cuts, though the range and degree differed across loan types. It added that not all lenders engage in rate competition.

“I’m actually in the camp transmission is getting better,” said Euben Paracuelles, chief ASEAN economist at Nomura Holdings Inc. “It’s certainly not the lowest in the region and I would say compared to past cutting cycles, policy transmission of BSP’s latest rate cuts is improving.”

In the meantime, banks and consumers are cautious amid worsening political uncertainty. In July, President Ferdinand Marcos Jr. unveiled a major campaign against corruption, especially in flood control projects. Massive protests erupted in anger at the scale of the graft, and the government slowed public works spending to allow more scrutiny, with stocks sliding to a three-year low.

Sentiment had already been hit by a year of fierce feuding between Marcos and Vice President Sara Duterte.

The Philippines isn’t alone in seeing banks refrain from rate cuts. Bank Indonesia’s governor last month criticized banks for only cutting lending rates by 15 basis points, even as the benchmark has been reduced by ten times that. In other countries such as Malaysia, however, lending rates are required to be calibrated with policy rates. In Communist Vietnam, the government is driving state-owned lenders to extend credit as it pushes to achieve economic growth to 10% a year.

“Household credit demand has responded uncharacteristically weakly to the recent monetary policy easing cycle in Asia,” ANZ analysts led by Sanjay Mathur and Dhiraj Nim wrote in a Nov. 6 report.

Source: Business World

Unconscionable interest rates can be nullified or reduced

While the parties to a loan agreement may freely agree on the interest rate that applies to their transaction, any imposition of interest rate must always be reasonable and fair.

In fact, the Supreme Court ruled that even the willingness of the debtor to assume an exorbitant and unconscionable interest rate does not validate the agreed rate as legally binding and enforceable. This principle was clearly explained in the case of Spouses Castro v. Tan [GR 168940, Nov. 24, 2009], penned by Associate Justice Mariano del Castillo, which states:

“The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained within the sphere of public or private morals.”

Relative thereto, any loan agreement stipulating a grossly excessive interest rate is contrary to morals, and therefore void from the beginning, in consonance with Article 1409 of the New Civil Code of the Philippines.

Moreover, to prevent lenders from exploiting borrowers with oppressive rates of interest, the courts are granted the power to reduce unjust or unconscionable contractual interest rates, pursuant to Article 1229 of the said Code, which provides:

“Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.”

With the foregoing, any debtor who enters into a loan agreement with an excessive interest rate may seek judicial relief to declare the interest void and unenforceable, or to reduce it to a fair and reasonable rate as warranted by the circumstances.

In this regard, one may, therefore, file a civil suit through the courts, either for the annulment of the interest rate in your loan agreement or the reformation of the instrument to fix the appropriate interest rate.

Source: Manila Times

CMEPA and the 20% tax: What it means for your bank savings

Netizens were in an uproar when banks implemented new tax rates on savings interest, prompting many to ask: “What’s going to happen to my savings?”

The changes stem from the Capital Markets Efficiency Promotion Act (CMEPA), a new law signed by President Ferdinand Marcos Jr. in May and enacted in July. It aims to introduce key reforms to level the playing field in trade and investment. One such reform is the reduction of the Stock Transaction Tax (STT) from 0.6% to 0.1%.

However, what triggered the uproar is the uniform 20% tax rate on interest income.

The Department of Finance (DOF) has since clarified misconceptions fueled by social media buzz, especially the mistaken belief that people’s actual bank savings are being taxed 20%.

In reality, it’s not the money in your account being taxed, but the interest it earns while sitting in the bank. The DOF also emphasized that this is not a new tax, but an existing one that has now been standardized under CMEPA.

“1998 pa lang, may 20% tax na ang interest na kinikita ng ating mga karaniwang deposito sa bangko,” the DOF said in a Facebook post. 

(As early as 1998, there was already a 20% tax on our interest being made by ordinary deposits in the bank.) 

The DOF summarized the new tax rates as follows: 

CMEPA and the 20% tax: What it means for your bank savings

The DOF argued that the old system favored those who are richer, as their studies showed that they are the ones holding long-term deposits (TD). 

Rizal Commercial Banking Corp. chief economist Michael Ricafort told Philstar.com that the impact will likely be felt more by those with Foreign Currency Deposit Unit (FCDU) accounts and US dollar time deposits.

“TD amounts become bigger, in terms of the larger interest income generated and now the higher 20% withholding tax that these are subjected to since July 1, 2025,” he said. 

“But for smaller amounts, the changes could be minimal/negligible,” Ricafort said. 

What can the public gain from the CMEPA?

While the CMEPA would certainly make the Philippines more appealing to investors after the lowering of several investment taxes, how could it help the common Filipino who wants to simply earn money? 

The DOF argued that the CMEPA would encourage ordinary Filipinos to invest and diversify their income sources. Other than the reduction of the STT, the CMEPA also decreased the documentary stamp taxes (DST) rate from 1% to 0.75%, as well as removing it completely from the collective investment schemes. 

“These measures are seen to cut transaction costs, encourage market participation and financial planning, boost market liquidity, make the country’s equities market regionally competitive, and increase capital market growth,” the DOF said in a statement. 

Ricafort agreed with the DOF, saying that local investors would have more choices in diversifying their investments with hopes of generating more returns.

While the CMEPA may ease investment, the question of whether or not the average Filipino is willing to invest their money in the current economic environment remains, especially amid inflation and global uncertainties. 

Ricafort said that now is still a conducive time for investing. 

“Bond yields near cycle/multi-year highs that are favorable for investors,” he said. 

What can the public do to mitigate CMEPA’s impact? 

While smaller savings accounts may not feel the effects of the CMEPA, some have raised that middle-class earners who wish to save more money in the long run are more likely to feel the effects of the CMEPA. 

Ricafort advised that they could seek alternative means to save or invest their money. He said that savers could try out a Personal Equity and Retirement Account (PERA). A PERA account is a voluntary retirement savings account that could supplement your SSS. 

Investment is also an option, but Ricafort warned newcomers to be cautious.

“This is investment related, not deposits, that are subject to market conditions or higher risk-higher return trade off as a source of diversification,” Ricafort said. 

Source: Philstar