Philippine financial system under pressure amid Middle East conflicts – FSCC

THE PHILIPPINE financial system is under increasing pressure as an insultproblems tied to the company’s debt and in a growing home debt within the Middle East conflict continues to test its strength, the Financial Stability Coordiwithtion Council (FSCC) said.

In a statement following its latest quarterly meeting held last week, the interagency council noted that the local banking sector remains strong, but dangers arise proa long-standing war in the Middle East.

“Country risks remain the main source of uncertainty,” said Bangko Sentral ng Pilipinas (BSP) Governor and FSCC Chairman Eli M. Remolona, ​​Jr. on Monday.

The FSCC said the country could face higher oil prices, market volatility, tighter financial conditions, and slower economic growth if the Middle East conflict remains unresolved.

In its latest semistral report on the Philippine financial system, the BSP noted that the conflict in the Middle East is expected to have a limited direct impact on local banks, as well as the potential burden on the industry. workplace.

This is because the banking system ended in 2025 has enough instruments to prevent threats from the energy crisis, it said.

However, the war could still increase the cost of borrowing and lead to higher levels of household and business debt, the FSCC noted.

The FSCC said companies, particularly those exposed to energy and interest rate sensitive sectors, may face higher debt servicing costs and reduced profit margins as energy prices rise, and financial conditions tighten.

This, according to the council, may affect the quality of the banks’ assets.

“The Council also noted that the increase in bond yields may lead to a loss in the value of bank shares,” it added. “If market pressures continue, this is likely affect the capital buffers.”

Meanwhile, the FSCC has told banks to look at their ability to repay loans amid ongoing problems.

“We see pockets of vulnerability in energy- and interest-sensitive sectors as well as valuation pressures from higher bond yields,” said Mr. Remolona. “Nevertheless, the financial system remains strong, banks have enough money

and liquidity buffers in absorb shock and continue to borrow houses and companies.”

A WEAK BENEFIT
On the other hand, Moody’s Ratings said that Asia-Pacific banks, especially the Philippines, could see weak profits due to high debt costs if the Strait of Hormuz continues to be disturbed in the third quarter.

“The stabilization of energy prices due to the long-running conflict in the Middle East will have an impact on the credit profiles of Asia-Pacific (APAC) banks, through their loan portfolios and financing channels,” it said in a separate report on Monday.

This is based on the credit rating agency’s new average scenario where the disruption of oil trade in the Strait of Hormuz continues until the third quarter of the year, with global oil prices between $90-$110 per barrel.

Moody’s Ratings noted that the Philippines’ heavy reliance on imported oil from the Middle East makes its banking sector more vulnerable.

“Banks in South and Southeast Asia – especially Bangladesh, the Philippines, Vietnam, Thailand, Indonesia and India – are facing high challenges because their economies are highly dependent on buying energy from the Middle East, or foreign buffers and oil sources, or both,” it said.

The Philippines gets more than 90% of its oil from the Middle East, which has caused domestic tap prices to rise when war disrupts trade in the region.

This also fueled inflation in the country, with April’s headline rate rising to a three-year high of 7.2%, a situation Moody’s said is straining domestic budgets and increasing debt servicing pressure on consumers and small businesses.

“This will lead to credit growth but at a slower rate for those loans,” the credit watcher added. “However, given the absence of heavy economic arrivals, any deterioration in these portfolios is likely to be limited.”

Moody’s also warned that Philippine banks where retail and SME loans take up a large portion of their portfolio could see their profits decline.

“Banks with large retail and SME (small and medium-sized enterprises) books – such as those in Thailand, Indonesia and the Philippines – could see weaker profitability due to rising impairment charges,” Moody’s Ratings added. “However, the pre-arrangement income will always be sufficient to absorb these costs without the threat of default.”

Moody’s ratings also noted that tight labor conditions in the Middle East due to a long-running conflict dampened remittances to the Philippines.

“Income from Gulf Cooperation Council economies is another source of risk for banks in the Philippines and Bangladesh, given the large share of remittances from people working in the Middle East,” he said. “A protracted conflict creates uncertainty if labor conditions in the Middle East are seriously disrupted, leading to a soft exit.”

However, the latest central bank data showed that remittances from the region rose by nearly 20% to $565.91 million in March from $471.836 million in February, which Moody’s said helped maintain bank deposits during the period.

“Nevertheless, any decline in outflows would have a negative impact on banking and local consumption,” it added.

Mr. Remolona said the FSCC, which is composed of the BSP, the Department of Finance, the Securities and Exchange Commission, the Commission of Insurance, and the Philippine Deposit Insurance Corp., is closely monitoring developments surrounding the Middle East conflict and other external factors to identify and address possible defects in the local financial sector.

The council similarly enforces strict supervision of non-bank financial institutions including quasi-banks, investment houses, non-stock savings and loan associations, pawnshops, and trust corporations.

“The Council is also working to improve the way it monitors system and communication risks,” the FSCC added. – Katherine K. Chan