Expectations of as much as 100 basis points (bps) in interest rate cuts by the Bangko Sentral ng Pilipinas (BSP) next year would put more pressure on domestic banks’ margins, according to debt watcher S&P Global Ratings.

In a recent report, S&P Global forecast the BSP policy rate to drop further to four percent by end-2026, from a projected five percent by end-2025. This means that the credit ratings agency expects one more 25-bp rate cut by the BSP’s policy-setting Monetary Board before year-end, from the current 5.25-percent policy rate.

“In the Philippines, we expect rate cuts to happen more in 2026, and so the NIM [net interest margin] impact is expected to be more pronounced in 2026,” S&P Global said.

The debt watcher noted that across Asian emerging markets (EMs), including the Philippines, key interest rates are expected to “soften further.”

“The recent appreciation of EM currencies against the United States (US) dollar leaves central banks with more scope to cut rates. The combination of stronger EM currencies and lower oil prices will help decrease inflation in most EMs, given many are net importers of energy,” it said.

As a result, “policy rate cuts could hurt profitability, though the reserve ratio cut could provide some reprieve,” it added.

For S&P Global, “a higher share of unsecured loans, sustained reduction in operating expenses, and a front-loaded 200-bp cut in the reserves ratio (to five percent) could partially offset the impact of potential rate cuts” by the BSP until 2026.

These expectations also hinge on S&P Global’s related forecasts that headline inflation would likely average 2.3 percent this year before climbing to a still-manageable 3.2 percent next year.

Philippine economic growth, meanwhile, is seen speeding up to 5.9 percent in 2025—within the government’s downgraded target range of 5.5 to 6.5 percent for the year—from 5.7 percent last year. Gross domestic product (GDP) expansion is projected by S&P Global to be at the six-percent level from 2026 to 2028.

The credit ratings agency also expects the Philippine peso to appreciate year-on-year against the US dollar to ₱56.8:$1 by end-2025, from ₱57.3 at end-2024, before further strengthening to ₱56.1 by the end of 2026.