Global debt watcher Fitch Ratings expects Philippine banks to face increasing costs as they write off unpaid debts and prepare for future losses while navigating an increasingly uncertain geopolitical and economic environment caused by the Middle East war.

This outlook comes even as the Bangko Sentral ng Pilipinas (BSP) recently implemented regulatory relief measures that could help reduce the domestic banking industry’s non-performing loan (NPL) ratio over the coming months.

Willie Tanoto, Fitch senior director for Asia-Pacific (APAC) banks, said in the latest episode of Fitch’s audio commentary last May 19 that credit card loans are a banking segment “where losses can spike quickly if household finances sour.”

However, Tanoto noted that the BSP was among the first regulators in the region to implement loan relief measures last month.

“This will likely suppress reported NPL ratios, but we still expect credit costs to rise because of write-offs and preemptive provisions,” Tanoto said.

Credit card loans, which reached ₱1.24 trillion, now account for around eight percent of the banking sector’s loan book as of the first quarter of 2026.

Philippine banks’ bad loan ratio improved to 3.29 percent as of end-March, marking a three-month low as lending growth accelerated at a faster pace than the increase in soured loans.

The ratio narrowed from 3.33 percent in February and 3.31 percent in January.

Fitch holds a negative outlook on the sovereign rating of the Philippines, reflecting heightened economic headwinds that have worsened in recent weeks.

It has, however, “affirmed the banking operating environment scores and outlooks” for the Philippines despite the sovereign outlook downgrade.

Tanoto said the affirmation signals that “banking sector fundamentals in these markets [the Philippines, Indonesia, and Thailand] remain sound,” especially among the largest private lenders.

Meanwhile, state-owned banks reflect the sovereign outlook downgrades.

Looking ahead, the banking industry must also contend with external inflation risks.

Tanoto warned that the inflationary effects of elevated energy prices “may start turning the propellers in reverse.”

However, he noted that early data suggests the Philippines may see the start of a “modest recovery in 2027.”

For now, the focus remains on how banks manage their asset quality as the relief measures take effect.

Tanoto noted that despite the resilience of the banking system, Fitch identified the Philippines as among the primary markets in the APAC region currently facing the greatest pressure on banking asset quality.