Philippines’ consumer credit surge

The rapid growth of consumer lending in the Philippines in recent years has raised some important questions: Does it signal rising risks to financial stability, or does it reflect healthy progress in financial inclusion? Consumer loans have expanded considerably faster than overall bank lending, growing by about 18% on average since mid-2022, compared with roughly 11% for total loans. Growth in consumer loans accelerated further to over 21% in the third quarter of 2025, with credit cards accounting for nearly 40% of this increase.

Against this backdrop, it is natural to ask whether the banking system remains sound, and whether consumers are piling up excessive debt, especially as credit card use becomes more widespread. According to an AMRO analysis, the consumer loan market in the Philippines appears, for now, to have largely succeeded in supporting financial inclusion while maintaining financial stability, as household debt stood at around 13% of GDP in 2025, low by regional standards. Building on this assessment, this article discusses the key conditions that will determine whether consumer lending can continue to support the Philippine economy in a stable and sustainable way.

Individuals can benefit from a deeper consumer loan market which enables them to use credit to pursue personal goals and improve their quality of life, thereby enhancing their financial well-being. Banks can diversify their borrower base through consumer lending, thereby achieving greater risk diversification within their loan portfolios.

From a broader economic perspective, consumer lending can help smooth consumption over time for households and bring people who previously had limited access to financial services into economic activity, improving overall welfare. If the market remains sustainable over the medium to long term, consumer loans can continue to support the resilience of the Philippines’ domestic demand.

For consumer lending to continue expanding in a way that preserves financial stability and support financial inclusion, three key areas of efforts are particularly important.

1. Sound risk management by banks.

Banks themselves must act with discipline, supporting economic growth while preventing excessive lending and serving as guardrails for their sustainable business expansion. Philippine banks have so far shown solid performance. Key indicators of asset quality, such as non-performing loan ratios for consumer loans, hovering at around mid-5%, remain broadly healthy and capital adequacy has not shown major signs of stress, staying above 16% as of September 2025. Banks have been shifting toward business models that generate higher-yield income, while incurring more credit costs through provisioning for credit losses and bad debt write-offs, resulting in stronger profitability.

At the same time, the rapid growth in consumer lending has been mainly driven by credit card loans. As unsecured lending becomes more prominent, this form of lending underscores the need for banks to maintain prudent lending standards and effective risk management. On the positive side, the growing number of credit cards also reflects the spread of cashless payments and signals progress in financial inclusion for previously underserved groups.

As digital finance continues to develop and new financial products and platforms become more widespread, the risk management frameworks of banks will need to evolve in line with changing consumer behavior in the evolving financial sector landscape. Responsible and disciplined lending can help reduce sharp swings of credit conditions in business cycles, contributing to a more stable financial cycle overall.

2. Better borrowing decision-making by consumers.

Financial literacy on the borrowing side matters. As financial services become more accessible, closing the gap between merely having access to them and being able to use them well becomes increasingly important. Stronger financial literacy can help consumers make better economic decisions. In times when banks take a more aggressive lending stance to improve profitability, consumers should rely on their financial knowledge to choose a borrowing option that matches their repayment capacity with life circumstances, thereby avoiding excessive debt.

Improved financial education can also complement consumer protection measures taken by regulators. At the same time, it can encourage banks to offer affordable financial products that better reflect consumers’ repaying ability. Through these interactions, overall financial well-being among consumers can be enhanced.

3. Proper oversight by authorities and stronger financial infrastructure.

If banks and consumers are on the front line, regulators play the role of referee, overseeing the balance of the whole system. Authorities need to continue monitoring financial stability closely and respond in a timely manner when necessary. This includes both macro- and micro-prudential policies, as well as maintaining and strengthening institutional frameworks for consumer protection. Looking ahead, attention is also needed to the possibility that digital innovation and new financial products could shift risks beyond the traditional banking sector, including into short-term investment vehicles linked to buy-now-pay-later (BNPL) and e-commerce activity, stablecoins and crypto platforms, as well as fintech wallets.

Strengthening financial infrastructure is another key medium-term challenge. Wider use of credit cards can help new borrowers build credit histories, making it easier for them to access other financial products. To make the most of this progress, robust credit information systems are essential: they help borrowers avoid unfavorable terms, allow lenders to manage risks more carefully, and enable regulators to better understand current conditions. In addition, improving statistical systems that capture both formal and informal lending would help provide a clearer picture of household debt and repayment capacity.

In conclusion, the expansion of consumer lending in the Philippines reflects the economy’s strong underlying potential and is not, in itself, a problem. Whether it becomes a problem will depend on whether discipline by lenders, sound judgment by borrowers, and effective oversight by authorities continue to function. In this sense, the Philippines’ experience with surging consumer lending offers a useful case for other countries seeking to balance economic development with financial stability.

Source: Business World

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

Philippine banks’ real estate exposure sinks to 6-year low

The exposure of Philippine banks and trust entities to the property sector dropped to a six-year low at the end of March, data from the Bangko Sentral ng Pilipinas (BSP) reported.

Banks’ real estate exposure ratio slipped to 19.41% as of end-March from 19.75% at end-December. It was also lower than 20.31% in the same period last year.

This was also the lowest real estate exposure ratio recorded in six years or since the 19.2% at end-March 2019.

The BSP monitors lenders’ exposure to the real estate industry as part of its mandate to maintain financial stability.

Investments and loans extended by Philippine banks and trust departments to the real estate sector rose by 7.76% to P3.34 trillion as of March from P3.1 trillion in the same period in 2024.

Broken down, real estate loans increased by 9.1% to P2.97 trillion as of end-March from P2.72 trillion at end-March 2024.

Residential real estate loans increased by an annual 11% to P1.13 trillion, while commercial real estate loans also went up by an annual 7.96% to P1.83 trillion.

Past due real estate loans stood at P149.52 billion, higher by 9.3% from P136.79 billion a year prior.

Broken down, past due residential real estate loans climbed by 14.74% to P107.62 billion, while past due commercial real estate loans fell by 2.56% to P41.9 billion.

Gross nonperforming real estate loans inched up by 0.44% to P111.27 billion at end-March from P110.79 billion a year ago.

This brought the gross nonperforming real estate loan ratio to 3.75% at end-March, lower than 4.07% a year earlier.

Meanwhile, real estate investments also dipped by 1.86% to P372.4 billion as of end-March from P379.45 billion in the same period a year ago.

Debt securities increased by 1.93% year on year to P256.04 billion, while equity securities fell by 9.28% to P116.36 billion.

Joey Roi H. Bondoc, director and head of research at Colliers Philippines attributed the banks’ lower exposure ratio in the first quarter to the drop in consumer demand for housing loans.

In a phone interview, Mr. Bondoc said there have been reports that homebuyers are backing out of their loans.

“Once it enters the bank financing, [the payment] balloons to, say, quadruple, quintuple times. That’s the problem,” he said, noting that some buyers may have been attracted by the low downpayment.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said real estate developers may also be cautious in managing new supply after the exit of Philippine offshore gaming operators.

“Banks, real estate companies, investors, end-users also cautious on possible slower world and local economic conditions due to Trump’s higher tariffs/trade wars/other protectionist policies and geopolitical risks recently such as the Israel-Iran war,” Mr. Ricafort said.

Mr. Bondoc said he sees some “green shoots of recovery, but those are primarily outside of Metro Manila.”

“The horizontal house and lot projects are still good. But, again, the more expensive projects, say those in Metro Manila, including the condos, the take-up is definitely down,” he said.

Recent rate cuts by the BSP may not have been felt by consumers.

“We’ve seen these reductions already from the central bank since last year. But have we seen an impact, a positive impact, meaning reduced mortgage rates? Not yet. We have not seen that,” Mr. Bondoc said.

On Thursday, the BSP delivered a second straight 25-basis-point (bp) cut, bringing its policy rate to 5.25% amid a benign inflation outlook and slowing economic growth.

It has now reduced benchmark borrowing costs by 125 bps since it began its easing cycle in August last year.

“Our average rate, for example, five-year loans, still at 7.7%. When last year, it was 7.8%. There’s really no sizable, substantial correction or reduction in terms of these mortgage rates,” Mr. Bondoc said.

BSP Governor Eli M. Remolona, Jr. also signaled they could deliver one more 25-bp cut this year.

Source: Business World