The Philippine banking system remains largely insulated from the escalating geopolitical volatility in the Middle East, bolstered by record asset levels and capital buffers that have outpaced the nation’s broader economic growth, according to the Bangko Sentral ng Pilipinas (BSP).

In its latest semestral assessment of the financial system, the central bank said domestic lenders are well-positioned to absorb external shocks despite the threat of indirect fallout.

While direct exposure to the conflict remains minimal, the BSP warned that risks are primarily transmitted through secondary channels, including fluctuations in global oil prices, foreign exchange volatility, and tightening international financial conditions.

“Latest supervisory assessments indicate that the banking system’s direct exposures to geopolitical tensions in the Middle East remain limited, with risks largely transmitted through indirect channels such as higher oil prices, inflationary pressures, forex movements, and tighter global financial conditions,” the BSP wrote in the report.

It further stressed that the industry’s “strong capital and liquidity positions, diversified funding bases, and proactive risk management practices provide cushions against these external spillovers.”

This stability continues a broader trend of resilience, as the banking system “remained resilient” in the second half of 2025. The BSP said this was propped up by “sound balance sheet expansion, stable funding conditions, and robust capital and liquidity buffers.”

Total assets of the banking sector grew by 8.9 percent to reach ₱29.9 trillion by the end of 2025, a growth rate that significantly outpaced the overall expansion of the Philippine economy at 4.4 percent.

Driving the sector’s growth was firm lending expansion fueled by domestic demand. Lending grew by 11.7 percent annually to ₱17.1 trillion, driven mainly by households and the electricity, real estate, and wholesale sectors.

Even with rapid credit expansion, the central bank observed that asset quality remains manageable due to banks’ “prudent lending practices.”

As of end-2025, banks’ bad loan, or non-performing loan (NPL), ratio declined to 3.1 percent, reaching its lowest level in recent years.

However, the BSP cautioned that while indicators are positive, banks must stay vigilant as “asset quality remains subject to downside risks, including softer domestic growth momentum, external headwinds, and sector-specific vulnerabilities.”

In particular, banks have identified “heightened” sensitivity in fuel- and supply-chain-dependent sectors such as transportation and manufacturing due to ongoing geopolitical tensions.

Looking ahead, the BSP’s outlook remains positive, with the latest business expectation survey pointing to an “optimistic overall business outlook” for the year ahead, with firms citing stronger consumer demand and recovering government spending as major drivers.

To ensure this momentum is not lost to emerging threats, the BSP is modernizing its regulatory framework, with plans to refine crisis management planning.

“The BSP remains committed to fostering a regulatory environment that supports their continued growth and resilience while advancing the interest of Filipino financial consumers,” BSP Governor Eli M. Remolona, Jr. said.