The Washington-based multilateral lender International Monetary Fund (IMF) said sluggish profits in the Philippine manufacturing sector, which accounts for nearly one-fifth of domestic loans, could make banks more vulnerable if global trade conditions sour.

In its latest staff report for the Philippines, dated Dec. 14, the IMF noted that the manufacturing sector has been posting low earnings.

“The soundness of manufacturing and wholesale and retail loans—accounting for about 19 percent of domestic loans at end-August 2025—could be affected by adverse global trade developments,” the IMF said.

Among the major global trade policies that left markets grappling to maintain stability were the sweeping tariff hikes announced by United States (US) President Donald Trump during Liberation Day last April, which were imposed in August.

For most US-bound Philippine exports, the tariff now stands at 19 percent following a series of bilateral negotiations. Higher tariffs could raise import costs and reduce export demand, which could dent the profits of manufacturing and wholesale and retail firms.

Apart from trade risks, the multilateral lender also flagged deeper links between conglomerates and banks as a potential source of existing systemic risks.

“Banks’ interconnectedness with the corporate sector, including through complex conglomerate structures, may also expose the financial system to risks,” the IMF said. Rising debt and funding mismatches could heighten vulnerabilities.

Earlier this year, the interagency Financial Stability Coordination Council (FSCC), chaired by the Bangko Sentral ng Pilipinas (BSP), warned that heavy borrowing by large firms could increase vulnerabilities in the Philippine financial sector.

Results from the 2024 Financial Stability Report (FSR) showed that many corporations depend heavily on bank funding, and assessments suggest their close links with domestic systemically important banks (DSIBs) could amplify risks across the financial system.

While fewer firms are struggling with loan repayment, the IMF reported that the number—although not specified—remains higher than pre-pandemic levels.

As such, the IMF stressed the need for close monitoring of existing vulnerabilities.

On the real estate front, high mortgage rates and excess supply from the pre-pandemic construction boom continue to contribute to elevated vacancy rates, the IMF said, adding that these are compounded by the exit of Philippine offshore gaming operators (POGOs) from Metro Manila after the Marcos Jr. administration ordered their ban.

Despite high vacancy rates and a non-performing loan (NPL) ratio of 6.4 percent as of end-June 2025, the IMF noted that residential property prices and loan growth have remained strong.

As of September, residential real estate loans (REL) increased by 11.2 percent to ₱1.19 trillion from ₱1.07 trillion a year earlier. Commercial REL also rose by 7.3 percent to ₱1.91 trillion from ₱1.78 trillion in the same period in 2024.