BSP told to monitor banks’ exposure to manufacturing, public sector

The International Monetary Fund (IMF) urged the Bangko Sentral ng Pilipinas (BSP) to closely monitor banks’ exposure to the manufacturing and public sectors amid lingering uncertainty over global trade policies.

In a report following its Article IV Consultation with the Philippines, the IMF noted that the manufacturing sector’s earnings remain subdued and global trade woes pose risks to manufacturing and wholesale or retail lending.

“The earnings in the manufacturing sector have been weak and the soundness of manufacturing and wholesale or retail loans, accounting for about 19% of domestic loans at end-August 2025, could be affected by adverse global trade developments,” it said.

Since Aug. 7, the US has been imposing a 19% tariff on most Philippine goods, the same rate imposed on goods from Cambodia, Malaysia, Indonesia and Thailand.

The US is usually the top destination for Philippine exports.

Latest central bank data showed that banks’ granted P1.179 trillion in loans to the manufacturing sector at end-October, equivalent to 8.5% of the P13.793-trillion total bank lending during the period.

Banks also lent P1.58 trillion to wholesale and retail trade in the 10-month period, accounting for 11.5% of the total loans.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) fell sharply to 47.4 in November, a reversal from the 50.1 in October. This was the steepest drop in over four years as production and new orders declined in November.

At the same time, the IMF said the central bank should track household debt as low savings rates among households add to the financial system’s vulnerabilities.

“Household debt, buoyed by robust growth in real estate loans, rapid growth in bank credit card and salary loans, and increased credit access through NBFIs (nonbank financial institutions) and digital finance warrants close monitoring, given low household saving rates,” it said. “So does banks’ exposure to the public sector, which has increased since the pandemic.”

Latest BSP data showed that consumer loans climbed by 21.26% year on year to P3.537 trillion as of September.

CORPORATE TIES
Meanwhile, the IMF said the financial system may also be more vulnerable to risks stemming from banks’ close ties with the corporate sector.

“Banks’ interconnectedness with the corporate sector, including through complex conglomerate structures, may also expose the financial system to risks,” it said. “NBFIs, some of which are not supervised by the BSP, are relatively small, but have expanded lending activities to real estate, consumer loans, and micro, small and medium-sized enterprises (MSMEs).”

The Financial Stability Coordination Council earlier said that it has recently observed tighter connections between the financial system and nonfinancial corporations.

However, the FSCC noted that associated risks remain from trends in the housing market and leverage in corporate and household sectors, though cushioned by banks’ robust capital, healthy liquidity, and sufficient loan loss provisioning.

Meanwhile, the IMF said the Philippines should improve its macroprudential policy framework to mitigate potential risks and vulnerabilities.

“Replacing the cap on commercial real estate exposures with a sectoral systemic risk buffer would help capture broader risks in the real estate sector and provide banks with price-based incentives to align their loan portfolios and capital buffers with systemic risk; though its implementation would need to ensure that there are no unintended changes in the macroprudential stance,” it added.

At end-September, the banking system’s real estate exposure ratio stood at 19.54%, down from 19.61% at end-June and 19.55% last year. The BSP has set a threshold for banks’ real estate lending at 25% of their total loan portfolio.

Central bank data likewise showed that past due real estate loans climbed by 7.06% year on year to P158.619 billion at end-September from P148.157 billion previously.

This, as past due residential real estate loans rose by 5.16% to P110.379 billion, while past due commercial real estate loans went up by 11.7% to P48.24 billion. — Katherine K. Chan