Middle East war to push up Philippine banks’ credit losses, costs — S&P

PHILIPPINE BANKS could see higher credit costs as soured loans are expected to rise due to the economic fallout from the Middle East war, S&P Global Ratings said.

“The direct exposure to the Middle East is limited for both banks and nonbank financial institutions. The second-order impact could be relatively higher for Philippines compared to some of the other countries in South and Southeast Asia due to the country’s position as a net oil importer,” S&P Global Ratings Director and Lead Analyst for Financial Institutions Ratings Nikita Anand said in a webinar on Wednesday.

“In the absence of the Middle East conflict, we were expecting that credit losses could decline as government spending picks up in 2025. However, with the conflict, our forecasts have changed even in the base case.”

In its downside scenario, the debt watcher sees Philippine banks’ nonperforming loan (NPL) ratio rising by as much as 50 basis points and credit costs to rise to 1.1% of total loans.

Under this scenario, it sees Brent crude peaking at $200 a barrel in April before easing to $185 a barrel later in the second quarter and then declining to $100 a barrel by 2027.

Sectors likely to be most affected by the war are airlines, refining, chemicals, and agriculture, while midsized corporations, smaller businesses, and lower-income consumers could be vulnerable to higher energy prices and supply chain disruptions, Ms. Anand said.

“Unsecured consumer loans have been a big growth driver in recent years and could see higher NPLs. Philippine households which are dependent on remittances from the Middle East could also see a deterioration in repayment capacity,” she added.

Loan restructuring and state support for the micro, small, and medium enterprise sector in the form of guarantees could minimize the expected increase in banks’ NPLs, she said.

S&P also expects banks to be more conservative as the war amplifies market uncertainty.

“In the near term, we believe banks will be more selective and prioritize conservation of capital and liquidity over growth,” Ms. Anand said.

Meanwhile, banks could see stronger deposit inflows as people become more risk averse. — Aaron Michael C. Sy