MANILA — Emergency regulatory relief measures introduced by the Bangko Sentral ng Pilipinas (BSP) to cushion the economic impact of the Middle East oil shock could pressure Philippine bank profitability over the next two years, according to a new analysis from S&P Global Ratings.
The central bank's package, announced in response to President Marcos's declaration of a national energy emergency, aims to prevent a surge in bad loans but may simultaneously reduce lenders' interest income.
"Suspension of loan repayments could reduce interest income. These factors will weigh on the profitability outlook for the next one to two years," S&P stated in a client note. "But it could avoid a spike in nonperforming loans."
The relief measures include temporary grace periods of up to six months for affected borrowers' loan payments and deferments of agricultural loan payments for up to one year, based on individual bank assessments. Loans to these borrowers may also be excluded from past-due classifications for up to a year.
Additionally, the BSP is strongly urging financial institutions to temporarily suspend fees for online banking and electronic money services, including InstaPay and PesoNet transactions, to ensure continued access to banking services during the crisis.
While Philippine banks have minimal direct exposure to Middle East corporate sectors—with less than 5% of lending tied to affected industries like airlines, oil refining, chemicals, and agriculture—S&P warned of potential "second-order impacts." Higher oil prices could strain retail borrowers' cash flows, indirectly affecting lenders.
The banking sector entered this period with some pressure already evident. In February, before the conflict escalated, loans overdue by at least 90 days reached a six-month high of 3.33% of the total lending portfolio. Concurrently, banks reduced their buffers against unpaid loans, with allowances for credit losses falling to ₱519.5 billion, representing a coverage ratio of 93.83%—the lowest since November 2024.
BSP Governor Eli Remolona Jr. first signaled the relief plan following a surprise Monetary Board meeting on March 26, where the benchmark interest rate was held steady at 4.25% despite mounting inflationary pressures. S&P concluded that while the relief measures present a profitability challenge, the overall impact on the Philippine banking industry should remain manageable.