PH financial system remains resilient in second half of 2025 – BSP

The Philippine financial system sustained its resilience in the second semester of 2025, supported by sound balance sheet growth, stable funding conditions, and robust capital and liquidity buffers, according to the Bangko Sentral ng Pilipinas (BSP).

The Philippine banking system accounted for 83.2 percent of total financial system resources as of end-December 2025.

Total assets expanded by 8.9 percent year-on-year to PHP 29.9 trillion, driven by sustained lending and steady investment activity.

Lending grew 11.7 percent year-on-year to PHP 17.1 trillion, led by households, electricity, real estate, and wholesale sectors. Together with manufacturing, these sectors accounted for 61.9 percent, or PHP 10.6 trillion, of total banking system loans.

The credit-to-gross domestic product ratio improved to 61.1 percent at end-2025 from 57.9 percent at end-2024, indicating a deepening of financial intermediation.

Total deposits rose 7.4 percent to PHP 21.9 trillion, predominantly peso-denominated at 83.3 percent and resident-sourced at 99.1 percent.

Net profit rose 3.6 percent to PHP 405.6 billion for the period ending December 2025, translating to a return on assets of 1.4 percent and return on equity of 11.5 percent. The net interest margin widened to 4.5 percent from 4.3 percent the prior year.

The capital adequacy ratio stood at 15.8 percent on a solo basis and 16.2 percent on a consolidated basis for universal and commercial banks. The liquidity coverage ratio reached 172.3 percent on a solo basis, well above the 100 percent regulatory threshold.

The gross non-performing loan ratio declined to 3.1 percent from 3.3 percent a year earlier, even as the absolute level of NPLs rose 5.1 percent to PHP 526 billion. The NPL coverage ratio stood at 97.2 percent.

Credit to priority sectors expanded. Lending to micro, small, and medium enterprises grew 6.4 percent to PHP 580.1 billion, while loans to barangay micro business enterprises increased 47.4 percent to PHP 169.8 million. Banks exceeded the mandated 25 percent allocation for agriculture, fisheries, and rural development financing under Republic Act No. 11901, with total bank allocation reaching PHP 2.8 trillion as of December 2025.

Universal and commercial banks dominated, holding 93.4 percent, or PHP 27.9 trillion, of total assets. Domestic banks comprised 94.3 percent, or PHP 28.1 trillion, while foreign banks accounted for 5.7 percent, or PHP 1.7 trillion.

Trust operations reached PHP 9.2 trillion in assets, up 24.6 percent, while foreign currency deposit unit operations recorded USD 80.5 billion, up 11.2 percent.

BSP-supervised non-bank financial institutions continued to expand. Non-banks with quasi-banking functions reported assets of PHP 189.2 billion, while non-stock savings and loan associations reached PHP 354.1 billion. The nationwide pawnshop and money service business network expanded to 23,288 offices as of end-2025.

The BSP noted that the banking system’s direct exposures to Middle East geopolitical tensions remain limited, with risks transmitted primarily through higher oil prices, inflationary pressures, foreign exchange movements, and tighter global financial conditions.

Stress tests confirmed that capital and liquidity buffers remain sufficient under baseline and moderate shock scenarios, though the BSP said continued vigilance is warranted against valuation effects, funding cost pressures, and potential credit deterioration should external shocks persist.

In the second half of 2025, the BSP pursued policy reforms under three strategic priorities: strengthening institutional soundness, accelerating digital transformation and supervisory innovation, and promoting inclusive and sustainable finance.

Key measures included tightened disqualification rules for bank directors and officers, new regulations on large-value cash transactions exceeding PHP 500,000, and the suspension of in-app gambling access on digital platforms. The BSP also closed the application window for new digital bank licenses effective December 2025 and extended the moratorium on licenses for virtual asset service providers.

The BSP completed its fifth Supervisory College in the second half of 2025 under the Financial Sector Forum and created a dedicated FSS Resolution Group to strengthen resolution frameworks.

BSP Circular No. 1227 dated Jan. 5, 2026 extended regulatory incentives for an additional two years, allowing banks to exceed single borrower limits by up to 15 percent and apply a zero-percent reserve requirement on sustainable bonds for eligible green and sustainable projects. Cumulative green, social, sustainability, and sustainability-linked bond issuances by Philippine banks expanded to an estimated PHP 664.7 billion in 2025.

The report was prepared by the BSP’s Supervisory Policy and Research Department under the Financial Supervision Sector and submitted to the President and Congress in compliance with Section 39(c), Article V of Republic Act No. 7653, as amended by Republic Act No. 11211.