PHILIPPINE economic activity and infrastructure were thrown into disarray after a multibillion-peso flood control scandal erupted in late 2025, which dampened investor sentiment and stalled key infrastructure pipelines.

The banking sector was not spared from this graft controversy as it may await potential challenges such as returning to the Financial Action Task Force鈥檚 (FATF) gray list.

Despite the noise and shocks that rocked the local economy during the period, financial institutions have navigated through these choppy waters stronger than expected and managed to stay afloat.

In response, the banking sector鈥檚 approach to corruption and governance risks may be noted through implementation of stringent regulatory controls, advanced internal monitoring systems and strategic risk management to ensure financial stability.

The central bank firms its view that the Philippine banking system remains stable and that this financial resilience mirrors strong balance sheet growth, solid profitability, and prudent credit practices.

The Bangko Sentral ng Pilipinas (BSP) said that it monitors indicators of financial soundness such as credit growth, asset quality, liquidity measures, capital adequacy, and profitability to assess the overall financial condition of Philippine banks.

鈥淭he BSP also conducts regular stress testing exercises to assess the financial resilience of individual banks and the banking system against shocks or adverse scenarios,鈥� the central bank said in an e-mail interview.

STEERING THROUGH CHOPPY WATERS
Asia United Bank Corp. (AUB)President Manuel A. Gomez said that the market views the public infrastructure and flood control disruptions as compounded threats.

鈥淸These act] as both a macroeconomic drag that dampens investor sentiment and a structural risk to financial stability due to the alarming potential of the Philippines returning to the FATF gray list,鈥� he said in an e-mail interview.

Nicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co., said that the central bank is committed to ensuring financial market stability as this is one BSP鈥檚 key pillars of central banking.

鈥淏SP continuously monitors banks as well as conditions in the financial market. Of late they have announced some adjustments to their liquidity management tools,鈥� he said in an e-mail.

BSP鈥檚 role is crucial as it serves as an anchor in the financial system through calibrated monetary policy and strengthened supervision.

Banks adjusting their risk capacity amid political uncertainty should be anchored on institutionalized governance, management systems, and internal controls, Development Bank of the Philippines (DBP) President and Chief Executive Officer Michael O. de Jesus said in an e-mail.

鈥淭he Bank (DBP) remains proactive in ensuring that its risk capacity remains resilient through periodic review of its risk appetite, capital and risk management limits, and various risk monitoring tools,鈥� he said.

For the Philippine National Bank (PNB), banks are adjusting their Anti-Money Laundering (AML) risk capacity by reassessing their exposure to increased financial crime risks, such as corruption, bribery, and the misuse of public funds.

鈥淭he Bank (PNB) adopts necessary additional controls to address the heightened risks through enhanced due diligence, more conservative onboarding decisions, and enhanced transaction鈥憁onitoring controls, among others,鈥� PNB said in an e-mail interview.

It added that the adjustments help ensure that banks remain resilient and compliant as political instability raises the likelihood of financial crime threats.

For AUB鈥檚 Mr. Gomez, banks manage their risk capacity by maintaining disciplined underwriting standards, building a high-quality asset base, running stress tests under adverse governance/policy scenarios, and maintaining robust contingency plans and governance controls.

Mr. Gomez also emphasized that on a macroeconomic level, banks monitor inflation trends, the central bank鈥檚 policy rate adjustments, and the momentum of public infrastructure spending are some reforms that could stabilize the banking sector.

On the other hand, he added that at the institutional level, banks can stabilize their operations by diversifying fee income which will help reduce reliance on volatile or extraordinary market gains.

鈥淔inancial institutions closely monitor core business expansion, such as the growth in commercial lending, which indicates that business confidence has returned to pre-pandemic levels,鈥� he said.

鈥楪RAY LIST鈥� RETURN RISKS
The ongoing graft controversy with flood-control projects puts the country at risk of being placed back in the FATF鈥檚 鈥済ray list,鈥� BSP Governor Eli M. Remolona, Jr. said during a media information session held earlier in February.

The country needs to reinforce its defenses to avoid being included by the global financial crime watchdog, especially if this graft controversy shows systemic failures.

In February 2025, the country exited the FATF鈥檚 list of jurisdictions under increased monitoring for dirty money risks.

Back in June 2021, the Philippines was put under increased monitoring as the financial crime watchdog identified deficiencies in the country鈥檚 measures against anti-money laundering/counter terrorism financing activities.

The Anti-Money Laundering Council (AMLC) said that countries included in the FATF gray list is a burdensome process for banks and other financial institutions.

鈥淭his process discourages correspondent banking relationships and international financial flows into the country,鈥� it said.

The cost of being included in the FATF鈥檚 gray list may harm the investment climate of the country. It may lead to increased compliance burdens, hinder lower cost cross-border transactions and may diminish financial transparency.

Additionally, it may increase monitoring requirements for foreign banks which may result to higher fees and may negatively impact on overseas workers relying on remittances, among others.

It could also lead to lower investor confidence and reduction in foreign direct investments and may lower capital inflows.

Mr. Gomez of AUB said that this scandal showed that traditional, institution-level AML monitoring often fails to detect procurement-related fraud.

Corrupt syndicates, he said, used 鈥済host projects鈥� and fragmented their transactions to evade compliance teams.

He stressed that 鈥渢o address these gaps, regulatory bodies are pushing for cross-institution intelligence sharing and the BSP has enforced stricter protocols on large cash withdrawals to ensure enhanced due diligence is applied automatically.鈥�

For PNB, the unusually large cash withdrawals and suspicious cash flows exposed potential weaknesses in customer due diligence, transaction monitoring, and compliance with reporting obligations.

To address these weaknesses, financial institutions must adopt stronger AML controls to prevent similar failures, it said.

It highlighted that financial institutions are expected to enhance customer due diligence, particularly for high-risk clients and politically exposed people as well as strengthen transaction monitoring to detect unusual cash flows and repeated large-value withdrawals.

PNB also noted that these institutions should strictly comply with the timely reporting of suspicious transactions, especially when accounts linked to public funds show red flags and improve negative news screening and risk reviews.

The bank highlighted that the Philippine government has taken a series of coordinated actions to address issues pertaining to corruption while the AMLC rolled out efforts supporting the government鈥檚 asset-recovery drive.

鈥淭ogether, these actions reflect a multiagency push to strengthen controls over public infrastructure spending,鈥� PNB said.

For AUB, progress must be measured based on FATF-aligned statistics, particularly the number of successful corruption case filings, secured convictions, recovered taxpayer funds, and the transparent resumption of suspended public infrastructure projects.

鈥淔or financial institutions, the critical benchmark is the successful deployment of advanced data intelligence and network-level analytics,鈥� Mr. Gomez said.

He also stressed that true progress will be achieved when the banking system can proactively detect and block high-risk public procurement anomalies, assuring stakeholders of fortified resilience against systemic vulnerabilities and illicit exploitation.

CALMING THE WATERS
Countermeasures to shield or stabilize balance sheets from the risks associated with the corruption mess include banks focusing on 鈥渟ustainable, volume-led growth鈥� by aggressively deploying funds into core commercial lending rather than high-risk sectors, AUB鈥檚 Mr. Gomez said.

鈥淔rom a regulatory standpoint, authorities are aggressively freezing illicit assets, the AMLC has secured freeze orders on thousands of accounts and properties.鈥�

For the central bank, it has implemented structural regulatory reforms that have strengthened the banking system.

These reforms have raised prudential standards, improved governance and risk management frameworks, sharpened supervisory tools, and aligned practices with the best global practices.

鈥淭he BSP leverages its supervisory and regulatory oversight to assess emerging balance sheet risks,鈥� the central bank said.

It emphasized that the approach is preventive and structural, aimed at identifying affected exposures and ensuring that any governance weaknesses or integrity concerns do not escalate into broader financial stress.

Additionally, the central bank鈥檚 policy on large-value cash transactions strengthens transparency and traceability of higher-risk cash activities, reinforcing banks鈥� obligations under the AML/counterterrorism financing framework.

鈥淏y tightening reporting standards and enhancing risk-based monitoring of unusually large or structured cash movements, the BSP helps prevent the misuse of the financial system for illicit purposes,鈥� it said.

These countermeasures reduce vulnerabilities that could undermine institutional resilience and public confidence.

The central bank also emphasized that it remains committed to safeguarding financial stability through a calibrated supervisory approach and targeted regulatory policy reforms.

Its current priority regulatory policies are anchored on two pillars: fostering resilience and sustaining relevance.

鈥淭hese reforms ensure that the banking sector remains sound and stable, relevant, and adaptive to support sustainable and inclusive economic growth.鈥�

For PNB, the BSP recalibrates its policies by implementing strict controls on high-value cash transactions through BSP Circular No. 1218 (Regulation on large value cash transactions) issued in September 2025 in response to heightened risks associated with money laundering and corruption.

鈥淭his regulation limits cash withdrawals and similar payouts to P500,000 per customer per banking day unless supported by enhanced due diligence.鈥�

It added that the policy mandates that large value payouts must be conducted through traceable, noncash channels.

In late February, the central bank issued Circular No. 1230, increasing the cash withdrawal threshold to P1 million from P500,000 to focus on higher-risk activity while streamlining the process for legitimate and normal cash transactions, including recurring ones.

鈥淭he increase follows consultations with banks and industries, which showed a large number of legitimate cash transactions above the original threshold. These covered payouts, such as payroll, loans, and project-based disbursements,鈥� the BSP said in a press release.

For Mr. Gomez, BSP is sustaining a deliberate monetary easing cycle to offset the economic drag caused by recent governance fallouts and delayed public infrastructure spending from a macroeconomic stimulus perspective.

He added that with the Monetary board reducing its key policy rates, this should lower system-wide borrowing costs, support domestic demand, and catalyze economic growth, provided inflation trajectories remain manageable.

The BSP lowered policy rates by 25 basis points (bps) to 4.25% for a sixth straight meeting in its February policy meeting.

This was the lowest in over three years or since the 3.75% in August 2022.

Since its easing cycle in August 2024, the central bank has lowered interest rates by a total of 225 bps, including five straight 25-bp reductions in 2025.

鈥淭he BSP is recalibrating by carefully tightening and sequencing macro prudential measures,鈥� said Mr. Gomez.

He added that by communicating clear, transparent policy horizons and reinforcing stringent liquidity and capital adequacy standards, the BSP ensures that institutions maintain the necessary buffers to absorb potential shocks.

STAYING AFLOAT
For DBP鈥檚 Mr. de Jesus, strengthening capital adequacy and liquidity, enhancing risk management, diversifying portfolios, and balancing the need for confidentiality and transparency are crucial strategic thrusts for financial institutions.

These can improve money laundering detection capabilities and, in turn, boost consumer trust and confidence in the banking system.

For Mr. Gomez, banks should adopt execution-focused strategies prioritizing disciplined growth, strong funding fundamentals, and diversified recurring income streams.

鈥淚nvesting in scalable digital platforms helps capture retail growth and improve operational efficiency. Furthermore, institutions must deploy advanced, network-level anti-money laundering intelligence capable of detecting fragmented syndicates to protect the financial system from illicit exploitation,鈥� he said.

The BSP-supervised financial institutions can safeguard the financial system by reinforcing sound governance and risk culture, observing prudent risk-taking, and strengthening operational and cyber resilience.

鈥淚nstitutions that consistently invest in these fundamentals, while maintaining solid capital and liquidity buffers, are better equipped to absorb shocks and continue supporting households and businesses, even during periods of stress,鈥� the BSP said.

These efforts are complemented by the BSP鈥檚 ongoing surveillance, which includes regular stress testing exercises, enhanced supervisory monitoring, and prudential policy enhancements.

鈥淭he BSP stands ready to implement appropriate measures, as needed, to help mitigate potential shocks, support market confidence, and promote overall financial stability.鈥�

TUNING IN to local news in the late months of 2025 would have had you skimming through scoops on the exposed corruption mess of flood control funds.

The previous 大象传媒 quarterly banking report showed a finer strike the mess had dealt, revealing a dip in the Philippine banking sector鈥檚 performances in total assets and total loans.

The Bangko Sentral ng Pilipinas (BSP) said in an e-mail interview that the scenario showed how disruptions in public infrastructure projects could strain contractors and businesses with bank loans 鈥� jeopardizing loan repayment performance as a result.

Pointing fingers flew, and accusatory bombs landed, hearing after hearing, as public outrage continued to escalate in the streets and social media alike.

Amid the chaos and frustration over the lack of developments on the chase came the demand for changes in the system plagued by loopholes exploited by thieves whose trails could not be traced.

A proposed fix to the problem was raised last November as Senator Bam Aquino filed Senate Bill 1506 鈥� the Citizens Access and Disclosure of Expenditures for National Accountability (CADENA) Act, to boost transparency, accountability, and good governance of the state鈥檚 handling of public funds.

In December, the bill pushed through its third and final reading in the senate; its counterpart in the House of Representatives (House Bill No. 6761) stays pending at the committee level.

If enacted, the potential law will provide CADENA as a publicly accessible portal to all public budget data required under it.

The portal鈥檚 namesake, cadena 鈥� Filipino for 鈥渃hain鈥� 鈥� is a sly nod to the blockchain system underpinning its rollout.

TRIED AND TESTED
Henry R. Aguda, secretary of the Department of Information and Communications Technology (DICT), compared a blockchain鈥檚 function to that of a series of ledgers that keeps track of transactions.

鈥淓very blockchain is, at its simplest, a ledger. And every ledger is, at its simplest, a story,鈥� he said in his 2021 book entitled Opening the Archipelago: The Story of Blockchain in the Philippines authored with Cathy Bautista Casas and Nathan J. Marasigan.

Paul Soliman, cofounder and chief executive officer of BayaniChain, Inc. (BYC), said in a Viber message that CADENA will allow auditors, regulators, and the public 鈥渢o confirm that a document [of a transaction] or event exists, has not been altered, and has occurred at a specific time.鈥�

He established BYC after seeing that trust issues surrounding audit trails, document integrity, and reconciliation could be solved through the technical provisions of blockchain ledgers.

Mr. Soliman, who has studied and applied blockchain technology since 2016, reviewed and refined the bill in its second reading as a selected member of a convened technical working group.

The central bank said that the recent corruption scandal highlighted the needs of 鈥渢ransparency in company ownership, strong transaction monitoring, and better information systems,鈥� which could be solved by CADENA.

鈥淏lockchain introduces a new paradigm: a shared, immutable ledger where records cannot be altered without leaving a trace,鈥� said Mr. Soliman.

DATA CHAINMAIL
Mr. Aguda explains in his 2021 book that the blockchain system works through a cycle of matching and verifying data blocks through unique cryptographic signatures.

These signatures, called hashes, are spread across multiple 鈥渘odes of the network鈥� 鈥� allowing independent checking in different sources for a claim to be unanimously confirmed as true.

Mr. Soliman added that documents and fiscal events could be assigned their own hashes placed on a blockchain ledger, changing how they could be trusted and checked.

This achieves three things: transparency, immutability, and veracity.

He said that the provision of transparency would allow independent verification without exposing sensitive information.

Immutability, on the other hand, would be given to documents by denying verification of an altered document with a mismatched hash.

While veracity may be improved by ensuring data integrity through mathematical means of verifying each hash on top of classic institutional assurance.

鈥淸This] creates a verifiable audit layer above government systems […] strengthening trust in how public funds are tracked and reported,鈥� Mr. Soliman said.

Mr. Aguda鈥檚 book supports this, saying that each hash is 鈥渋nextricably linked to all that came before and after it, allowing for one to trace a way back to the genesis 鈥� the very first block 鈥� from any point in the chain.鈥�

POTENT LINKAGE
The BSP said that universal and commercial banks (U/KBs) face exposure to public project dependencies, stress scenarios involving project suspensions and regulatory disruptions which they must regularly assess in operations.

Section 4 of the bill says that its coverage extends to public-private partnerships (PPP) involved in utilizing, disbursing, and accounting for public funds through national government agencies.

This shows that CADENA brings the promise of helping to monitor and flag rising anomalies among private companies connected with government projects that hold funds in banks.

In simpler terms, the bill鈥檚 provisions could render U/KBs as its passive beneficiaries 鈥� preventing them from facing shocks rooted in PPP corruption.

鈥淔rom a financial stability and anti-money-laundering and combating the financing of terrorism (AML/CTF) standpoint, CADENA could help reduce opportunities for misuse of public funds before such risks reach the financial system,鈥� the BSP said.

However, Mr. Soliman said that banks could also play a critical role in the potential law鈥檚 implementation.

He said that banks could 鈥渋ntegrate their settlement records with blockchain verification layers for stronger auditability,鈥� being at the 鈥渋ntersection of financial transactions and institutional trust.鈥�

He added that this would entail banks providing transaction validation data on government financial flows and participating in verification nodes in the network government finance framework.

鈥淧rivate entities [鈥 could contribute independent attestations, validation checkpoints, or monitoring analytics that enhance oversight and public confidence,鈥� he added, saying that听 blockchain systems support 鈥渕ulti-stakeholder validation models.鈥�

鈥淭his would create stronger alignment between fiscal records and financial settlement systems,鈥� said Mr. Soliman.

In line with this, the BSP said that U/KBs could proactively improve data quality and 鈥渆nhance AML/CTF safeguards鈥� to face corruption shocks.

鈥淭he [flood control mess] also underscored the need to continually strengthen training and internal controls for branch frontliners to ensure the timely identification, escalation, and reporting of unusual transactions,鈥� the central bank said.

BINDING ELEMENTS
Mr. Soliman said that implementation of CADENA would go through a 鈥減hased rollout approach.鈥�

The pilot stage would be operational at around six to 12 months from its enactment, focusing on establishing the internal integrity of the system.

鈥淭his stage validates the technical architecture, governance model, and verification mechanisms,鈥� he said.

However, he added that full nationwide implementation would take longer as it would entail coordinated integration among government systems, financial institutions, and regulatory frameworks.

The bill states that full government implementation is expected to take place around three years after it takes effect.

All government entities will be mandated to record and publish to CADENA all data from documents on the National Government budget.

The government agencies involved in its proposed process of disclosing public budget data and their respective functions are also discussed in the bill.

The DICT will handle a dedicated program management office for CADENA and will serve as the secretariat for the National Budget Transparency and Accountability Council (NBTAC).

The NBTAC will be comprised of members from the Department of Budget and Management, Commission on Audit, the Department of Justice, and the Department of Finance.

It will be responsible for monitoring, maintaining, and implementing the law 鈥� ensuring its promised provisions are delivered and outlined purposes fulfilled.

Considering this model, Mr. Soliman said that the main challenges facing the potential law鈥檚 effectiveness in the current set-up are institutional rather than technological.

He first cited system interoperability as a possible obstacle, as 鈥済overnment agencies operate different legacy systems.鈥�

Digital governance frameworks also need improvement, as execution will need clearer standards on data ownership, validation, and disclosure.

Furthermore, he said that technical teams and policy stakeholders would need to build their capacities in handling distributed systems.

Lastly, he said that regulatory clarity must also be put in mind as findings and records in the system 鈥渕ust align with legal frameworks for audit and compliance.鈥�

For Mr. Soliman, the daunting scope and challenges of CADENA can be managed with coordinated policy and technical planning.

DOWN THE LINE OF SUCCESS
Mr. Soliman said that the CADENA Act will face the reality of expansion if it passes into law nationwide.

He said that the proposed system would need to be incapacitated and carefully designed in several areas to handle this.

First, he mentioned that the governance of the network must be carefully defined to clarify those responsible for operating validation of nodes and decision making.

He also highlighted the importance of having data disclosure boundaries to ensure transparency without compromising sensitive fiscal information.

Furthermore, he also said that integration standards must be set to make sure different systems in government and finance could interact with the blockchain layer.

And lastly, he added that operational resistance must be strengthened to maintain redundancy and disaster recovery across the network.

鈥淭hese considerations are not weaknesses [in the system] but part of responsible system design when building national-scale digital infrastructure,鈥� he said.

鈥淚t is the realization of how its volatility can ruin your investment in a flash, especially when funds are placed in stocks or balanced equity pools,鈥� said the former multinational bank employee, who requested anonymity.

The Philippine Stock Exchange (PSE) index closed 2025 at 6,052.92 on Dec. 29, down 7.3% or 475.87 points from its end-2024 level of 6,528.79. On Nov. 14, the PSE index plunged to 5,584.35, its weakest close in nearly five and a half years, or since the 5,570.22 close on May 28, 2020.

By comparison, the Standard & Poor鈥檚 500 (S&P 500) index rose by 22.6% to 6,845.49 points by its final trading day on Dec. 31, 2025 from the same day in 2024.

Her experience reflects a broader flight to safety that swept through Philippine wealth management in 2025. The Philippine economy has been through a great upset, since President Ferdinand R. Marcos, Jr. said that about 6,000 flood control projects estimated to be worth P350 billion launched since 2022 were anomalous.

TURMOIL
The flood-control project scandal鈥檚 damages were seen not just in poor infrastructure. It dragged the Philippine economy to a 3% growth in the fourth quarter of 2025, the slowest pace since the 3.8% contraction in the first quarter of 2021 during the coronavirus pandemic, data from the Philippine Statistics Authority (PSA) showed.

Full-year growth settled at 4.4%, the weakest in five years outside the pandemic-induced 9.5% contraction in 2020 and missed the government鈥檚 5.5%- 6.5% target.

Approved foreign investments in the Philippines plunged by 50.1% year on year to P272.38 billion in 2025, the sharpest fall in five years, according to the PSA. This was the steepest drop in foreign investments since the 71.3% decline recorded during the pandemic in 2020.

Even the Bangko Sentral ng Pilipinas (BSP) delivered a surprise rate cut in October, slashing by 25 basis points to bring the key rate to 4.75%. The Monetary Board said the outlook for domestic economic growth had weakened, reflecting in part the impact on business confidence of governance concerns about public infrastructure spending.

鈥淎cross our businesses, we saw a noticeable shift towards liquidity and flexibility,鈥� Philippine National Bank (PNB) said in an e-mailed response. 鈥淐lients whose risk appetite was already tempered by interest rate volatility and geopolitical uncertainty became even more allocation-conscious.鈥�

Joaquin Rossano U. Veluz, a client portfolio manager at Sun Life Investment Management and Trust Co., said investor confidence dropped sharply during the period.

鈥淎 lot of investors became quite risk-averse in their choice of investments,鈥� Mr. Veluz said in a Teams video call. 鈥淢any are prioritizing money market and short-term, capital preservation-type products.鈥�

About 90% of Sun Life鈥檚 assets under management in unit investment trust funds (UITFs) are parked in money market products, Mr. Veluz said. The corruption scandal that erupted in the second half of 2025 prompted many investors to park funds in cash, money market funds, and short-duration bonds.

鈥淢any households chose to park funds in cash, money-market funds and short-duration bonds rather than commit to longer-dated instruments,鈥� PNB added.

The former accountant said the market鈥檚 poor performance fundamentally changed her saving habits.

鈥淚nstead of putting my money into high-earning stock-equity investments, including insurance products with market exposure, I will consider investing in vacant land/lots and perhaps gold, if feasible,鈥� she said. 鈥淭hese are assets that appreciate over time.鈥�

Not all investors fled, however. An investment banker at a multinational firm who requested anonymity saw opportunity in the downturn, investing in stocks he assessed as undervalued during 2025.

鈥淣ow is a good time to purchase companies at a huge discount from intrinsic value,鈥� the investment banker said. 鈥淢any companies are even trading at below book value.鈥�

While he was able to beat the market last year 鈥� losing just 3% over the 10% crash starting from when he started going long 鈥� he said that the blue-chip stocks he bought continue to be undervalued today.

鈥淚 bought at the absolute bottom, and then it just stayed there.鈥�

COMMON PITFALLS
Wealth managers identified emotional decision-making as the primary risk facing investors during periods of market stress.

鈥淭he greatest risk we observe is emotional decision-making,鈥� PNB said. 鈥淪ensational headlines can trigger panic selling or excessive defensiveness, both of which undermine long-term returns.鈥�

Mr. Veluz said the most dangerous mistake he observes among Filipino investors is the absence of clear financial goals.

鈥淲hen you ask them why they invest, they don鈥檛 know,鈥� he said. 鈥淏ecause investing for retirement is entirely different from investing for a goal that鈥檚 three to five years away.鈥�

The lack of planning distorts decision-making and leaves investors vulnerable to market swings, he added.

鈥淣ot having a plan or a goal distorts your decision-making and leaves you without a clear sense of how to approach investing,鈥� Mr. Veluz said.

Beyond the absence of goals, Mr. Veluz identified two other common mistakes: lack of discipline and susceptibility to investment fads.

鈥淲hatever is trending, everyone wants in,鈥� he said. 鈥淩ight now, it鈥檚 probably gold and tech. Even if, first, your risk profile doesn鈥檛 fit that type of investment, and second, if your current portfolio is small, do you really want to allocate a substantial portion to an illiquid instrument?鈥�

The flood control scandal, which involved billions of pesos in alleged corruption, left many investors questioning whether saving made sense at all. The former accountant said she has lost faith in investing in local publicly listed companies entirely.

鈥淭here was this relationship manager of a major bank who gave advice never to invest in the local publicly listed companies,鈥� she said.

鈥淚t鈥檚 quite disheartening, to be honest,鈥� Mr. Veluz said. 鈥淏ut we advise our clients to focus on what they can control 鈥� and that is how much they save and where they invest those savings.鈥�

PNB emphasized that consistent contributions compound over time regardless of political or economic turbulence.

鈥淭he scandal underscored the importance of anchoring saving on personal goals rather than on circumstances beyond one鈥檚 control,鈥� the bank said. 鈥淲e remind clients that they save and invest to secure their family鈥檚 future and their own, not to endorse institutions.鈥�

LOOKING AHEAD
For clients specifically worried about corruption-driven volatility, PNB emphasized the importance of assessments.

鈥淏efore recommending specific instruments, we undertake a thorough client suitability assessment of each client鈥檚 goals, time horizon, sophistication, and risk tolerance,鈥� the bank said.

For conservative investors, PNB said it emphasizes government securities and investment-grade corporate bonds to provide regular income and principal stability.

鈥淒iversified fixed income funds can further spread risk across sectors and maturities,鈥� the bank added.

When corruption shocks coincide with other economic pressures, the bank advised measured adjustments.

鈥淲hen corruption-related shocks coincide with inflation, currency weakness or other macroeconomic pressures, the instinct may be to overhaul the entire portfolio,鈥� PNB said. 鈥淲e counsel against drastic shifts.鈥�

Mr. Veluz said wealth managers are steering clients toward diversified portfolios with increased global exposure.

鈥淪ince the local market is affected by corruption and weakened investor confidence, we always advise our clients to take a more holistic, diversified approach to their portfolios,鈥� he said. 鈥淣umber one: you have to get global exposure.鈥�

He said Filipino investors are beginning to appreciate the need for diversification after the Philippine market鈥檚 poor performance relative to global markets in recent years.

鈥淔rom 2005 to 2015, the Philippine market returned around 18鈥�19%,鈥� he said. 鈥淏ut from 2015 to 2025, that flipped. The Philippine market was flat to negative. The global market was around high double digits.鈥�

Asset managers have responded by rolling out more products that give Filipinos exposure to global funds, increasingly offering them in pesos to reach a wider investor base.

鈥淏efore, a lot of these funds were only available in US dollars,鈥� Mr. Veluz said. 鈥淣ow they鈥檙e offering them in peso and through more channels.鈥�

He added that diversifying to offshore markets actually lowers portfolio volatility.

鈥淭he S&P 500 companies are actually higher quality than local PSE index (PSEi) names,鈥� Mr. Veluz said. 鈥淪o by diversifying some of that local exposure, you鈥檙e actually lowering your volatility.鈥�

On emergency fund targets, PNB said the traditional benchmark of six to twelve months of essential expenses remains prudent, with the exact target adjusted for job stability and number of dependents.

鈥淭here is no universal formula for emergency funds because incomes and spending patterns vary widely,鈥� the bank said. 鈥淣evertheless, rising inflation and market volatility call for deeper liquidity buffers.鈥�

Mr. Veluz said his firm recommends three to six months of monthly income set aside in highly liquid instruments.

鈥淏ut I think the reality is that Filipino households and investors still want guaranteed-type returns and guaranteed-type products,鈥� he said. 鈥淎 lot of them are in money market, time deposits, and current account savings accounts.鈥�

The former accountant said she still believes in saving despite current economic conditions, but through more traditional vehicles.

鈥淚t may be wiser to place excess funds in more traditional investment vehicles such as money鈥憁arket funds, bonds, raw land, or even gold,鈥� she said.

The investment banker took the opposite view.

鈥淚 suggest investing instead of saving,鈥� he said. 鈥淎gain now is a great time to accumulate assets at high discounts to intrinsic value.鈥�

Despite the challenges of 2025, wealth managers see potential for recovery in 2026, provided certain conditions are met.

鈥淭he PSEi has a chance to perform well,鈥� Mr. Veluz said. 鈥淲hy? Because the peso has started to appreciate.鈥�

He said foreign investors may return to bargain hunt given how low valuations have become compared to regional neighbors.

鈥淲hether foreign flows actually return will still depend on how the economy and the country perform,鈥� Mr. Veluz said. 鈥淲e need to see a swift recovery, or at the very least, a stabilization of gross domestic product.鈥�

The missing link remains government spending and resolution of the corruption issue, he added.

鈥淭here needs to be some semblance of accountability 鈥� that people will face consequences for this corruption,鈥� Mr. Veluz said. 鈥淭hat would hopefully unlock a virtuous cycle: consumers start spending again, businesses start looking at expansion and hiring, and investors begin to feel that the worst is over.鈥�

The former accountant called for an independent watchdog group outside the control of politicians or big companies that could check, investigate, and stop suspicious activities immediately.

鈥淰iolators will then be caught early and not years later when the damage is already done,鈥� she said. 鈥淏ut for it to work, whistleblowers must be fully protected so insiders can safely report wrongdoing without fear of losing their jobs or being harassed.鈥�

The investment banker disagreed on the need for new regulations.

鈥淭he laws and rules and regulations are robust enough to prevent scandals and fraud,鈥� he said. 鈥淭he institutions are strong in a vacuum. But the problem is that the people running them are not incorruptible nor infallible.鈥�

For investors navigating the current environment, both wealth managers emphasized the importance of staying disciplined and maintaining a long-term perspective.

鈥淟ong term investors who stay invested through volatility historically fare better than those who jump in and out of markets,鈥� PNB said.

Mr. Veluz said the key message for 2026 is simple.

鈥淭hey should focus on staying the course and staying diversified,鈥� he said. 鈥� Pierce Oel A. Montalvo

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By Heather Caitlin P. Ma帽ago, Researcher

PHILIPPINE financial markets ended 2025 on a subdued note, as lingering concerns over domestic growth momentum and governance-related uncertainties offset the tailwinds from a sustained monetary easing cycle.

However, analysts warned that escalating Middle East tensions, which drove up global oil prices in early March, could trigger downturns in the local financial markets this year.

In the fourth quarter, the bellwether Philippine Stock Exchange index (PSEi) closed at 6,052.92. This was lower by 7.3% from 6,528.79 at the end of 2024.

Meanwhile, data from the Bankers Association of the Philippines showed the peso closed at P58.79 to the dollar in the October-to-December period, weakening by 1.6% from a year earlier.

Yields on government securities slipped by 44.04 basis points (bps) on an annual basis based on the PHP Bloomberg Valuation Service Reference Rates (BVAL) published on the Philippine Dealing System鈥檚 website.

During the period, domestic markets were influenced by a tension between aggressive monetary easing and a sharp deceleration in economic activity, said analysts.

鈥淥verall, the quarter was defined by the tension between supportive monetary settings on one hand and deteriorating growth momentum and weak sentiment on the other,鈥� said Union Bank of the Philippines (UnionBank) Chief Economist Ruben Carlo O. Asuncion.

Metropolitan Bank & Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa attributed the subdued market performance to 鈥渄eclining consumer and business sentiment鈥� as concerns shifted from global factors to domestic economic activity.

鈥淢acro drivers include sluggish GDP (gross domestic product) growth, benign inflation, and policy rate cuts,鈥� said Security Bank Corp. Chief Economist Angelo B. Taningco.

The Philippine Statistics Authority (PSA) reported on that the fourth-quarter gross domestic product expanded by 3%, slowing down from 5.3% in the fourth quarter of 2024 and the revised 3.9% print in the third quarter of 2025.

In 2025, the economy expanded by 4.4%, much weaker than the 5.7% growth in 2024.

This was the weakest pace in five years, or since the 9.5% contraction in 2020 at the height of the pandemic. Excluding the pandemic, it was the slowest growth since the 3.9% expansion in 2011.

PSA data also showed that headline inflation quickened to 1.8% in December from 1.5% in November but slowed from 2.9% in December 2024.

December鈥檚 figure was the fastest since February 2025, although it matched the 1.8% print in March 2025.

December marked the tenth consecutive month that inflation undershot the Bangko Sentral ng Pilipinas鈥� (BSP) 2-4% target.

Latest PSA data showed inflation rising to 2.4% in February 2026 from 2% in January and 2.1% a year earlier 鈥� the highest since January 2025.

鈥淲ith inflation below target and even lower than the tolerance band, BSP opted to lower policy rates to bolster sagging growth momentum,鈥� said Metrobank鈥檚 Mr. Mapa.

By end鈥�2025, the BSP had lowered its benchmark policy rate by 25 bps to 4.5%, its lowest level since September 2022.

In February 2026, the Monetary Board cut the rate by another 25 bps to 4.25%, the lowest since August 2022.

This brought the BSP鈥檚 total reductions to 225 bps since it began its series of monetary policy easing in August 2024.

鈥淭he BSP鈥檚 two policy rate cuts in Q4 2025 helped support confidence in the domestic economy. Improved investor sentiment likely contributed to gains in select financial markets,鈥� the BSP said in an e-mail.

Sun Life Investment Management and Trust Corp. economist Patrick M. Ella said the rate cuts and easing inflation helped push yields lower. However, he noted that further declines in the yield curve did not materialize due to uncertainty over potential US rate cuts.

From October to December, the US Federal Reserve implemented two interest rate cuts 鈥� one in late October, which lowered the federal funds rate to 3.75%-4%, and another in December, which further reduced it to 3.5%-3.75%, completing the Fed鈥檚 three rate cuts for 2025.

GOVERNANCE AND SENTIMENT
Sentiment was particularly bruised by the flood control corruption scandal and investigations into infrastructure spending.

The local stock barometer was characterized by 鈥渢hin trading volumes, persistent foreign outflows, and lingering concerns over economic growth,鈥� according to Mr. Asuncion.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), pointed to tightened infrastructure spending amid the fiasco, alongside political uncertainties that dampened investor confidence.

Philippine government spending on infrastructure fell for a fifth straight month in November.

State disbursements for infrastructure and other capital outlays plunged 45.2% to P48 billion from a year earlier, according to data released by the Department of Budget and Management (DBM) on Jan. 31.

Metrobank鈥檚 Mr. Mapa said that 2025 market issues were distinct from the global factors of the previous year, appearing instead to be driven by 鈥渃oncerns on slowing economic activity and fading confidence.鈥�

ROAD AHEAD FOR 2026
Analysts expect remittances, tourism recovery, and resilient business process outsourcing firms (BPOs) to provide support, but they stressed that the broader economic outlook will depend on how quickly confidence rebounds from the governance shocks of late 2025.

鈥淚n 2026, market sentiment and financial conditions will depend on the interaction between domestic fundamentals and global developments. A key domestic driver will be how quickly confidence rebounds from recent governance shocks, hinging on the pace and credibility of governance reforms,鈥� said the central bank.

RCBC鈥檚 Mr. Ricafort forecasts GDP growth to pick up to 5.3%-5.8% this year, driven by a P1.44-trillion 鈥渃atch-up鈥� government spending plan in the first quarter.

Finance Secretary Frederick D. Go said the government plans to spend P1.44 trillion in the first quarter as part of catch-up efforts to support the economy after last year鈥檚 growth slowdown.

The planned first-quarter outlay under the P6.793鈥憈rillion national budget will help drive economic activity to meet the government鈥檚 GDP growth target, Mr. Go said at a Foreign Correspondents Association of the Philippines event on Feb. 2.

The government is targeting 5%-6% GDP growth this year.

鈥淭he trajectory of economic recovery will depend heavily on how quickly public spending normalizes and whether confidence can be rebuilt following governance-related disruptions,鈥� Mr. Asuncion said.

Security Bank鈥檚 Mr. Taningco warned that 鈥渆xcessive rate cuts may carry risks as inflation could rise again in 2026,鈥� suggesting a gradual easing path that could bring the policy rate down to 4%.

OIL PRICE SHOCK
Meanwhile, escalating geopolitical tensions in the Middle East, alongside soaring global oil prices, have introduced additional risks to the market.

鈥淥verall, oil prices will remain an important swing factor shaping policy expectations, currency performance, and sector leadership through 2026,鈥� said UnionBank鈥檚 Mr. Asuncion.

In the first quarter, higher fuel costs may push inflation upward, limiting expectations of deeper BSP rate cuts and nudging bond yields higher. These same dynamics could also pressure the peso by widening the trade deficit, particularly if energy imports continue to outpace export receipts, he said.

Beyond the first quarter, Mr. Asuncion added that market conditions will depend heavily on second鈥憆ound effects.

鈥淚f oil-driven inflation proves contained and demand conditions soften, the BSP should still have room to recalibrate policy later in the year, which would be supportive for bonds and rate-sensitive equities. However, a prolonged oil shock would favor defensives and energy-linked names, while keeping [foreign exchange] and equities more volatile,鈥� he said.

Security Bank鈥檚 Mr. Taningco emphasized that the Philippines is particularly vulnerable to high global oil prices, given its status as a net oil importer and its heavy reliance on Middle Eastern crude.

According to Department of Energy data, about 98% of the country鈥檚 oil imports come from the region.

FIXED-INCOME MARKET
BSP: The BSP expects that improving growth prospects and manageable inflation will support market confidence.

Mr. Asuncion: The outlook for fixed income remains favorable, with easing inflation, supportive monetary policy, and steady demand for longer鈥慸ated securities expected to keep yields contained. The curve is positioned for further flattening as investors continue to price in accommodative policy settings. Healthy liquidity conditions and strong demand in auctions should persist, barring any major supply surprises. Overall, fixed income is likely to outperform other asset classes in early 2026 as markets continue to digest the full effects of the easing cycle.

Mr. Mapa: The mix of policy easing from the BSP (although limited) and an eventual pickup in inflation should result in a steepening of the yield curve.

Mr. Ella: Taking its cue from the direction of Fed policy.

Mr. Taningco: Expecting downward pressure this first quarter largely due to risk-off sentiment triggered by the Middle East war, which sparked an oil price shock.

Mr. Ricafort: Fixed-income market remains positive, characterized by high demand for government securities and a trend toward lower yields. Future BSP rate cut/s possible amid relatively slower local economic growth/recovery and could match future Fed rate cut/s expected in the latter part of 2026 to better manage interest rate differentials.

EQUITIES
BSP: Equity market activity will be influenced by the interaction between domestic fundamentals and global developments, including how quickly confidence rebounds from recent governance shocks.

Mr. Asuncion: The equities market enters the first quarter of 2026 on a cautiously constructive footing. While lower interest rates and benign inflation create a supportive valuation environment, investors are likely to remain selective until clearer evidence of an economic turnaround emerges. The market may see intermittent rallies driven by rate鈥憇ensitive sectors and improving sentiment, but sustained upward momentum will depend on better macro data 鈥� particularly on government spending, corporate earnings guidance, and consumer demand conditions.

Mr. Ella: Taking its cue from domestic GDP and the direction of Fed policy. We have just begun with corporate earnings season so that will influence the first quarter.

Mr. Taningco: Expecting downward pressure this first quarter largely due to risk-off sentiment triggered by the Middle East war, which sparked an oil price shock.

Mr. Ricafort: PSEi has shown signs of a firm recovery, completely erasing losses from late 2025 as it trades above the 6,000 mark amid continued market optimism about possible inclusion of Philippine government bonds into the JPMorgan Emerging Market Bond Index that would entail additional foreign buying of Philippine government bonds worth about US$3 billion and mostly better local corporate earnings results by local listed companies recently that could fundamentally support valuations.

FOREIGN EXCHANGE (FX) MARKET
BSP: Expects the economy to be buffered from external headwinds by robust remittance inflows, a recovery in tourism, and resilient service export revenues (especially from BPOs).

Mr. Asuncion: The peso is expected to trade within a relatively stable range during the first quarter, influenced by a combination of supportive domestic inflation dynamics, a more patient Federal Reserve, and improving risk sentiment. However, without a clear rebound in domestic growth, significant appreciation is unlikely. The currency is likely to move within the upper鈥慞57 to P59 band, with modest strengthening possible if global dollar conditions soften and if early economic indicators point to recovering domestic activity.

Mr. Mapa: We could see the FX market impacted by overall direction of the US dollar as well as on BSP policy direction.

Mr. Ella: Taking its cue from the direction of Fed policy.

Mr. Taningco: Expecting downward pressure this first quarter largely due to risk-off sentiment triggered by Middle East war, which sparked an oil price shock.

Mr. Ricafort: Provided that inflation remains stable and within the BSP鈥檚 inflation target range of 2%-4%, the peso exchange rate vs. the US dollar remains relatively stable or stronger; also, within the acceptable monetary and fiscal policy space.

LISTED big banks fell in the fourth quarter of 2025 as weak economic growth dampened investors鈥� sentiment and policy rate cuts put pressure on banks鈥� lending margins, analysts said.

The Philippine Stock Exchange index (PSEi) inched down by 7.3% year on year to 6,052.92 at the end of the fourth quarter.

Meanwhile, the financials subindex, which includes the banks, also declined by 5.1% annually to 2,048.47 during the quarter.

As of end-December, the share prices of seven out of 13 listed universal and commercial banks (U/KBs) contracted year on year.

Among the decliners were Asia United Bank Corp. (AUB), Union Bank of the Philippines and Security Bank Corp.

On the other hand, six listed U/KBs posted annual growth in their share prices during the period.

In a statement sent to听大象传媒, AUB President Manuel A. Gomez, AUB鈥檚 price movement resulted from the 100% stock dividend declared on June 2025.

鈥淭his dividend doubled the number of outstanding shares, so the PSE automatically adjusted our stock price on the July 24 ex-dividend date to keep the overall market value balanced. AUB鈥檚 closing price before the adjustment (July 23, 2025) was P91.50, meaning the base price was adjusted to P45.75 per share. Payment date was on August 15, 2025 to shareholders as of July 25, 2025, record date,鈥� Mr. Gomez said in an e-mail.

鈥淲hen evaluating the stock鈥檚 performance, AUB actually experienced growth, not a decline, during this period. In December 2024, its normalized price was P30.75 (which was P61.50 per share pre-stock dividend),鈥� he added.

鈥淏y the end of December 2025, this price increased to P39.20 per share, a 27% increase year-on-year.鈥�

Aggregate net income of U/KBs grew 4.1% to P381.18 billion as of end-December from P366.02 billion in the same period in 2024, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Gross total loan portfolio of these big lenders rose by 11.2% to P15.80 trillion as of end-December 2025 from P14.20 trillion in the previous year.

The big bank鈥檚 gross nonperforming loan (NPL) ratio narrowed down to 2.80% as of end-December 2025 from 2.99% a year ago.

The big banks鈥� net interest margin (NIM) 鈥� a ratio that measures banks鈥� efficiency in investing their fund by dividing annualized net interest income to average earning asset 鈥� inched up to 4.18% in the fourth quarter from 4.04% in the same period a year earlier.

Provision for credit losses by these big banks reached P157.95 billion, up by 56.2% from P101.15 billion in December 2024.

鈥淎 softer gross domestic product (GDP) print heightened geopolitical tensions, and a declining interest rate environment weighed on bank stocks in [the fourth quarter of 2025],鈥� Jarrod Leighton M. Tin, an equity research analyst at DragonFi Securities, Inc., said in a Viber message.

Mr. Tin said the weak economic growth cast doubt on whether banks can sustain double-digit loan growths this year, citing strong correlation between GDP and credit demand.

The Philippine economy grew by 3% in the fourth quarter, slower than the 5.3% growth in the same period in 2024 and the revised 3.9% in the third quarter. This brought full-year 2025 GDP to 4.4%, the weakest in five years.

Unicapital Securities, Inc. Research Head Wendy B. Estacio-Cruz said the slower economic growth weakened investor confidence in equities, especially bank stocks.

鈥淭he softer economic momentum likely tempered credit demand and weighed on corporate profitability, which are critical to banks鈥� earnings growth,鈥� Ms. Estacio-Cruz said in an e-mail.

According to Kervin Laurence Sisayan, head of research at Maybank Securities Philippines, Inc., the slower GDP print signals a potentially 鈥渨eaker loan growth for the financial industry.鈥�

RATE CUTS
The BSP鈥檚 continued rate cuts also weighed on banks鈥� NIMs and profitability, analysts added.

鈥淭he decline in interest rate policy has reduced the funding cost of banks in general. On the flip side, it also puts downward pressure on earnings yield and overall put downward pressure on [NIMs],鈥� Mr. Sisayan said.

Key policy rate stood at an over three-year low of 4.5% by the end of 2025. Meanwhile, inflation increased to 1.8% in December, but full-year average eased to 1.7% in 2025 鈥� the slowest in nine years.

On Feb. 19, the Monetary Board lowered the target reverse repurchase rate by another 25 basis points (bps) to 4.25%. The BSP has reduced key interest rate by a total of 225 bps since it started its monetary policy easing in August 2024.

鈥淲hile lower rates likely supported loan demand and borrowers鈥� repayment capacity amid low inflation, they also compressed net interest margins as asset yields repriced faster than funding costs,鈥� Ms. Estacio-Cruz said.

She said this resulted in 鈥渢ighter spreads and more cautious lending behavior.鈥�

Linncon M. Lahip, equity analyst at Regina Capital Development Corp., said the stable inflation signaled a slower yet steady economic environment.

鈥淗owever, despite the easing environment, loan growth is beginning to slow down and may signal that it has already reached its peak, signaling a more cautious phase for the sector,鈥� he added.

Mr. Tin said banks have been 鈥減artially mitigating鈥� pressure from lower rates by 鈥渟hifting their loan mix toward higher-yielding consumer segments, supporting asset yields.鈥�

He noted that with benign inflation and subpar GDP growth, the central bank may have room for further rate reductions to spur demand and bolster economic activity.

Chinabank Securities Corp. Research Associate Ralph Jonathan B. Fausto said that while rate cuts amid benign inflation supported credit demand and consumption, investors remained concerned on growth uncertainties and weak sentiment.

This weighed on loan demand prospects and banks鈥� profit outlook, he said.

Jash Matthew M. Baylon, equity analyst at The First Resources Management and Securities Corp., noted that flood control corruption scandal during the second half of 2025 resulted to weaker net foreign investments, affecting the financial sector鈥檚 operations and flows.

鈥淭he weaker business confidence and foreign direct investments also put pressure [on] our local currency to weaken, reaching the high at P59 per dollar,鈥� he said.

Mr. Baylon said that given the pressure on banks鈥� NIM, the sector鈥檚 net interest rate profit may decline, leading to slower growth in earnings.

鈥淏ut on the positive note, the lower rates could boost more spending and investments, which could translate to higher loan volume,鈥� he added.

鈥淕eopolitical developments further dampened overall investor sentiment, with risk-off flows pressuring the broader market, including the banking sector,鈥� Mr. Tin said.

STANDOUTS
Despite headwinds, Mr. Baylon said banks鈥� performance 鈥渟howed a modest recovery鈥� in the fourth quarter compared to the July-to-September period, as holiday season remittances and consumer credit fueled spending.

According to Mr. Fausto, midsized banks like EW and PNB stood out during the quarter.

鈥淓W benefited from resilient core lending income, supported by its established consumer portfolio despite increasing competition in the space. PNB saw its profitability bolstered by lower provisions, as the bank implemented its dynamic risk management strategy to improve asset quality and stabilize NPLs,鈥� he said.

Meanwhile, Mr. Tin said the Bank of the Philippine Islands also stood out in the fourth quarter, citing resilient NIM amid low-interest rate environment.

鈥淭he continued repricing of the loan book toward higher-yielding consumer segments 鈥� where average yields exceed 12% 鈥� provides a structural buffer to net interest income should the BSP deliver further rate cuts,鈥� he said.

For Mr. Lahip, banks that gained a larger share of consumer lending stood out as they benefited from higher-yielding retail products like credit cards and personal loans.

鈥淚n addition, we think that those banks who also saw support from growing fee-based revenues tied to increased card usage and transaction volumes also stood out while maintaining disciplined risk management and adequate provisioning, enabling them to preserve asset quality and sustain profitability despite the inherently higher risks associated with consumer lending,鈥� Mr. Lahip added.

Ms. Estacio-Cruz said that banks with strong current account and savings account franchise and diversified income stream stood out during the quarter because they were 鈥渂etter positioned鈥� to withstand the margin pressure from lower interest rates.

鈥淏anks with solid consumer and MSME [micro, small, medium enterprise] loan exposure performed relatively well, supported by steady loan growth and resilient fee-based income from cards, bancassurance, and transaction banking,鈥� she said.

鈥淪ome banks also benefited from treasury and trading gains amid market volatility, which helped offset pressure on core interest income,鈥� she added.

OUTLOOK
Ms. Estacio-Cruz expects listed big banks to record growth in year-on-year earnings for the first quarter of 2026, supported by steady loan expansion, resilient consumer demand, and still-benign inflation.

鈥淗owever, margin growth may remain constrained as the full impact of the 2025 rate cuts continues to filter through balance sheets, keeping net interest margins relatively tight,鈥� she added.

For full-year 2026, Ms. Estacio-Cruz forecasts gradual improvement in banks鈥� performance 鈥渄riven by stronger credit demand, potential margin stabilization if policy rates hold or eventually normalize, and continued growth in fee-based income.鈥�

Mr. Lahip, on the other hand, expects banks to continue expanding to higher-yielding loans and fee-based income.

鈥淎t the same time, sustained investments in IT and digital infrastructure will remain crucial to enhance operational efficiency, strengthen risk management, and support long-term customer acquisition,鈥� Mr. Lahip added.

Mr. Sisayan sees 鈥渟lightly muted鈥� loan growth for the first quarter of 2026, noting the slower economic growth in the fourth quarter.

鈥淲hile double-digit loan and net income growth remain achievable, we would not be surprised to see expansion taper to the high single-digit range as normalization sets in,鈥� Mr. Tin said.

According to Mr. Tin, investors should monitor upcoming GDP prints and policy rates.

鈥淚f 4% proves to be the BSP鈥檚 terminal rate, margin pressure may stabilize; however, further easing could drive additional NIM compression, particularly if banks are unable to recalibrate their asset mix and funding structure efficiently,鈥� he added.

Apart from macroeconomic factors, First Resources鈥� Mr. Baylon said investors should also monitor geopolitical risks, updates on local corruption issues, and peso movement against the dollars.

Meanwhile, Chinabank鈥檚 Mr. Fausto said investors are likely to stay focused on loan growth, NIM resilience, and asset quality.

鈥淭he key question for investors is whether growth can be sustained despite prospects for lower NIMs and increasing credit costs,鈥� he said.

ON THE SIDELINES of The Asian Banker鈥檚 Finance Philippines 2025 forum in August, Bankers Association of the Philippines (BAP) President Jose Teodoro K. Limcaoco told reporters that mandatory credit lending rules and strict bank secrecy laws 鈥渉ave become constraints in today鈥檚 labor-driven financial marketplace.鈥�

鈥淏y modernizing these laws, we create a fertile ground for tech-driven analytics, smart risk management, better credit assessment, and a more competitive and transparent banking sector,鈥� added Mr. Limcaoco, who also serves as the president and chief executive officer of the Bank of Philippine Islands.

These calls for reform continue to echo throughout the banking industry. Last October, six major business groups in the Philippines, including the Makati Business Club (MBC) and the Management Association of the Philippines (MAP), signed a joint statement calling to amend the country鈥檚 bank secrecy laws.

Likewise, mandatory credit lending policies continue to be dragged into practice. The Asian Development Bank said that credit for micro, small, and medium enterprises (MSMEs) remained limited in the Philippines during 2024.

鈥淭he continued enforcement of the Magna Carta鈥檚 remaining provisions, alongside central bank oversight, underscores the government鈥檚 ongoing commitment to MSME development,鈥� it said regarding the Philippines in its Asia Small and Medium-Sized Enterprise Monitor 2025 report. 鈥淗owever, the stalled legislative amendments highlight the need for renewed policy attention to ensure the law remains responsive and effective in addressing current MSME challenges.鈥�

With players, policy groups, and regulators of the banking industry all pointing in the same direction, the question is no longer whether reform should happen 鈥� but when, and how.

BANK SECRECY
鈥淭he language of existing laws on bank secrecy makes the Philippines the only country to still have restrictive bank secrecy policy,鈥� the Bangko Sentral ng Pilipinas (BSP) said in its 2024 legal primer on the laws on secrecy of bank deposits.

The primer cites three republic acts (RAs) that define the country鈥檚 bank secrecy laws: RA 1405 or the Law on Secrecy of Bank Deposits, RA 6426 or the Foreign Currency Deposit Act, and RA 8367 or the Revised Nonstock Savings and Loan Association Act of 1997.

RA 1405, enacted in 1955, was intended to encourage public investment in government securities and discourage private hoarding after World War II.

Passed later in 1972, RA 6426 aimed to attract foreign currency deposits from overseas Filipinos to address the country鈥檚 dollar deficit and boost international reserves.

However, the primer notes that more than half a century after their enactment, the conditions that once prevailed no longer exist, rendering the laws outdated for their original purpose.

The primer also cites the 2011 declaration by the Group of Twenty (G20) that the 鈥渆ra of bank secrecy is over鈥� after endorsing standards on transparency and exchange of information. In 2014, the Organisation for Economic Co-operation and Development released the standard for automatic exchange of information as the new global standard for combating tax evasion and money laundering.

Now, the central bank is rocking the boat. The BSP resumed its push to reform these laws, BSP General Counsel Roberto L. Figueroa said at a House briefing last September.

The primer also mentioned that as of the document鈥檚 creation, the central bank is collaborating with BAP, MAP, MBC, and the Chamber of Thrift Banks (CTB) to propose the repeal of bank secrecy laws.

The Securities and Exchange Commission (SEC) also backed amendments to RA 1405 to fight corruption.

鈥淭he bank secrecy law has often been used as a shield for owners of bank accounts in cases of violations of RA 8799, or the Securities Regulation Code and RA 11232, or the Revised Corporation Code of the Philippines,鈥� the SEC said in a press release last September.

鈥淟ifting the bank secrecy provision will remove the greatest obstacle for authorities and regulators, to go after tax evasion and money laundering associated with corruption and other criminal activities,鈥� said Filomeno S. Sta. Ana III, executive director of economic research and policy group Action for Economic Reforms (AER), in an e-mail message.

鈥淐orrupt politicians, tax evaders, and other criminal elements have exploited the bank secrecy provision to keep law enforcers at bay.鈥�

Thrift banks are also burdened by the bank secrecy laws. Suzanne I. Felix, executive director of the CTB, said that the 鈥渟trict鈥� secrecy laws can slow fraud investigations in smaller banks that lack big in-house investigative teams.

鈥淭he CTB strongly supports calibrated reforms to the Bank Secrecy Law that uphold depositor confidentiality while enabling effective enforcement of anti-money laundering, fraud prevention, and prudential supervision measures.鈥�

MANDATED CREDIT
Despite being enacted 17 years ago, RA 9501 (the Magna Carta for MSMEs) remains largely unimplemented.

BSP data show that while bank loans for MSMEs grew by 7.1% to P536.51 billion as of end-June 2025, this was only 4.5% of their total loan portfolio of P12.05 trillion 鈥� still below the 10% overall requirement for banks under the Magna Carta for such enterprises.

Under the Magna Carta, banks were required to direct 8% of their lending to micro and small enterprises and another 2% to medium-sized businesses. The mandatory allocation ended in June 2018 after its 10-year term expired, though the BSP still monitors MSME lending as part of its oversight responsibilities.

Benel D. Lagua, a member of the Financial Executives of the Philippines and an independent director in progressive banks, said that the one-size-fits-all mandate 鈥渋gnored radically different business models, risk appetites, and geographic footprints.鈥�

鈥淩ural and cooperative banks serve naturally micro clients, while large banks found it cheaper to pay penalties than build costly retail underwriting systems.鈥�

The gap between mandate and reality is even starker when broken down by enterprise size. According to data cited by Ma. Aurora D. Geotina-Garcia, president of Mageo Consulting, Inc., 2024 figures show that only 1.8% of the mandated total loan portfolio went to micro and small enterprises 鈥� far below the 8% requirement. Medium businesses fared better at 2.83%, exceeding the 2% target.

鈥淥ver time, most banks have opted to incur penalties for noncompliance instead of fulfilling the 10% lending mandate,鈥� Ms. Geotina-Garcia said in an e-mail interview. 鈥淭his is due to the perceived risks of lending to micro and small businesses.鈥�

Furthermore, research by Luis F. Dumlao, an associate professor of economics at the Ateneo de Manila University, shows agricultural lending declined to 9.5% by 2022 from 21.7% of bank portfolios in 2012, a drop that occurred even as mandates remained in place.

In an e-mail interview, Mr. Dumlao said that 鈥渢he cost of doing business of paying the penalty has been less than the actuarial cost of default of lending to target lenders.鈥�

His research calculates that for mandatory credit allocation to work effectively with government guarantees covering 100% of plus risk-free interest, it would cost taxpayers approximately P300 billion for the agricultural sector alone 鈥� vastly exceeding the P2.75-billion budget allocation prescribed by the Department of Budget and Management.

鈥淭he politically and fiscally feasible approach to finding how much government should guarantee is how much political capital politicians are willing to give up either by raising taxes or by reallocating budget,鈥� Mr. Dumlao said, comparing it to the concept of 鈥渟tatistical value of life鈥� in policy decisions.

The thrift banking industry presents a more nuanced picture. Total compliance for micro and small enterprises among thrift banks grew from P22.22 billion in December 2022 to P34.17 billion by June 2025, representing growth of more than 50% over the period, according to data provided by Ms. Felix.

鈥淭he data show that while we consistently exceed the medium enterprise requirement, other segments require more flexible and risk-sensitive approaches.鈥�

For women entrepreneurs, barriers multiply. While women own or lead over 60% of MSMEs, they remain largely excluded from formal credit, Ms. Geotina-Garcia said.

鈥淭hey instead turn to alternative sources of capital 鈥� usually friends and family 鈥� or informal lenders, or register businesses and loans under their husband鈥檚 name,鈥� she said.

The gap between policy and market reality has spurred growth in alternative financing. Digital banks like Maya Bank now serve segments traditional banks have avoided.

Shailesh Baidwan, Maya Group president and Maya Bank cofounder, said in an e-mail interview that Maya鈥檚 reach has grown from 1.5 million bank customers in 2022 to nine million by September 2025, with more than 50% accessing formal credit for the first time.

鈥淥ur customer base is predominantly Millennials and Gen Z, who account for 84% of our bank users, and 76% are based outside Metro Manila,鈥� Mr. Baidwan said. 鈥淭his reflects how digital banking is closing access gaps in rural and emerging urban areas.鈥�

Maya uses alternative data, such as transaction patterns, digital payment activity, and business cash flows, to assess creditworthiness, enabling first-time borrowers to access loans.

Ms. Geotina-Garcia said that fintech companies now offer loans with minimal requirements and shorter processing times. 鈥淢SMEs lean towards alternative sources of funding as they provide a more streamlined process, cutting out the numerous requirements of banks,鈥� she said.

Industry experts increasingly advocate moving away from rigid quotas toward incentive-based systems. Mr. Lagua said that differentiating targets by bank category could be set, scaling penalties proportionately with bank size, and shifting from volume targets to access-oriented metrics such as the number of new-to-bank borrowers reached.

鈥淩ather than penalizing all banks equally, government should reward institutions that demonstrate real capability-building,鈥� he said. He also said that the need for transparent, bank-by-bank public reporting to enable accountability.

Ms. Felix echoed this view. 鈥淲e believe inclusion is achieved better through incentives, not penalties,鈥� she said. 鈥淟et鈥檚 reward banks that successfully expand MSME and Agri lending through lower capital charges, tax incentives, or supervisory recognition.鈥�

The CTB also advocates for strengthening credit guarantee programs and promoting co-lending arrangements with government institutions. 鈥淪trengthen credit guarantees, improve data access through the Credit Information Corporation, and promote co-lending with government institutions 鈥� these are sustainable ways to grow lending without jeopardizing depositor protection,鈥� Ms. Felix said.

OUTLOOK
As momentum builds for comprehensive banking reform, players in the banking industry paint differing pictures of urgency and caution. Yet, most agree the status quo is unsustainable.

On bank secrecy reform, consensus appears strongest. The convergence of BSP, SEC, and major business and policy groups behind careful reforms suggests legislative action may finally overcome decades of loopholes and oversight.

鈥淭he main deterrence to illicit activities that involve financial transactions is the near certainty of prosecution and conviction,鈥� Mr. Sta. Ana said. 鈥淟ifting bank secrecy is a necessary condition to obtain information and evidence in order to prosecute and convict.鈥�

Ms. Felix said that harmonizing local confidentiality rules with international anti-money laundering and counter-terrorism financing frameworks, particularly those under the Financial Action Task Force, could modernize the secrecy regime without compromising privacy.

The path forward for mandated credit leaves more to be agreed upon. Ms. Felix suggested a phased approach, with reforms rolling out over 18 to 24 months. 鈥淲e support a phased approach 鈥� first pilot programs, then fine-tuning before full implementation,鈥� she said.

The emergence of digital banks and fintech lenders adds innovation to the mandatory credit debate. Digital bank Maya Bank demonstrates that technology can reach underserved populations at scale.

鈥淭his includes support for the development of modern credit modeling practices; and a regulatory environment that allows for market-responsive, risk-based pricing,鈥� Mr. Baidwan said.

Meanwhile, Ms. Geotina-Garcia said that reform must be evidence-based but rooted in grassroots insights. 鈥淭here should be a process of consultation with intended beneficiaries, industry groups, and MSME associations as they know their situations best.鈥�

鈥淯nfortunately, the guarantee system or credit access in general is not a panacea to the problem,鈥� Mr. Dumlao said.

鈥淔inancial assistance is just the n-th major concern of prospective borrowers. There are others like corruption that concern borrowers before they become competitive.鈥�

OPEN your mobile phone to check your SMS inbox, scroll to some messages sent through your trusted e-wallet or digital bank鈥檚 line.

Among these, find any message telling you of claimable winnings, redeemable points, and retractable transactions.

Look for a link included in the message, do not open it 鈥� inspect its content for any sly mistypes to resemble the website it is trying to emulate.

If no suspicion initially arose, you would probably open the link under normal circumstances, clueless that a scam attempt has already targeted you.

For a lot of Filipinos, this theoretical scenario had already been a grim and costly real-life experience, which sees more victims by the day.

Considering the widespread susceptibility to these emerging financial threats, the Financial Sector Forum (FSF) and the Consumer Protection and Education Committee (CPEC) decided it was high time to relaunch the Protect Your Money (PYM) campaign.

The PYM campaign is an awareness drive first launched in 2013 calling for Filipinos to be vigilant and proactive against financial schemes through offers in fraudulent investment activities and documents.

In an e-mailed response to 大象传媒, the Bangko Sentral ng Pilipinas (BSP) said that the 2013 drive reminded the Filipino to protect his/her money by 鈥渒nowing the bank, verifying it鈥檚 BSP license, and dealing with authorized employees or licensed agents only.鈥�

The Financial Sector Forum renewed the campaign in June 2025 and adapted its information drives to more current financial threats.

鈥淭oday, deception wears a friendlier face, speaks your language online, and can reach your phone 24/7; this is why the PYM campaign needed to evolve,鈥� the central bank said.

BEHIND ENEMY LINES
Police Colonel Jay D. Guillermo, chief of the Philippine National Police anti-cybercrime group of the cyber response unit, said that a person鈥檚 information is the primarily coveted among cyber criminals.

鈥淚t is a person鈥檚 information that [the scammers] attain first to eventually run trickery on them and get their money,鈥� he told 大象传媒 in a Zoom interview.

Mr. Guillermo said that the public鈥檚 personal information is widely available and easily accessible online, making it seamless for cyber fraud assailants to collect.

According to data from the Philippines Digital 2025 report by social media consumer intelligence company Meltwater, 90.8 million Filipinos, or 78% of the country鈥檚 overall population, have been using social media in 2025.

The report also showed that Facebook and Messenger were the most popular social media applications among Filipinos, in line with the most popular usage purpose of keeping in touch with friends and family.

Mr. Guillermo said that scammers exploit Filipino鈥檚 personal connections to run emergency scams on friends and family members of personal accounts they take over.

鈥淭hrough Facebook, given that the user unknowingly provides the scammer with the one-time-passcode to his/her account, the latter may send messages to the former鈥檚 friends, asking for immediate financial aid after an alleged emergency,鈥� he said.

He added that the scammer would then manipulate the victim into sending money to a dummy account of the supposed 鈥渉elper鈥� of their friend in the made up emergency scenario.

Mr. Guillermo said that scammers also purchase verified and/or authentic accounts or identities of actual persons to generate fake identities that the public would be unlikely to hesitate in trusting.

An example he mentioned was of registered SIMs, whose contact activities would not be flagged by monitoring agencies resulting in minimal barriers to reaching the common mobile user.

SITTING DUCKS
鈥淭he profile of a typical fraud victim is [anyone] that lacks basic digital education and digital literacy,鈥� Julian Louie Singson, executive director and co-founder at the Cybersecurity Council of the Philippines (CSCP), told 大象传媒 in a Zoom call.

In multiple global reports and assessments, the Philippines has emerged as one of the most targeted and victimized countries in the cyberspace.

For instance, the 2025 Microsoft Digital Defense Report revealed that the Philippines placed 20^th among countries targeted by cyberthreats globally in the first half of the year.

Chief Executive Officer of Microsoft Philippines Peter Maquera said in an article that such attacks are 鈥渘o longer isolated information technology (IT) issues 鈥� they disrupt operations, delay customer service and cause financial and reputational damage that can take years to recover from.鈥�

The 2025 second-half update to the top fraud trends report by US-based consumer credit reporting agency TransUnion showed that the country was the most widely targeted by fraud among Asian countries assessed.

Almost two-thirds of all Filipino consumers surveyed were targeted by fraud, of which 9% eventually fell victim, from February to May 2025.

鈥淣owadays, people would receive text messages directly from reputable digital banks and e-wallets, containing links to fraudulent websites,鈥� Mr. Singson said, adding that these could be identified with thorough and informed inspection.

Phishing was the most prevalent form of fraud in the Philippines in the span, according to TransUnion report.

It involves an online scammer鈥檚 impersonation of reputable institutions through varying contact points to lure targets into providing sensitive information allowing them access to their financial accounts.

Among Filipino business leaders alone, 6% of total revenues were lost to fraud in the past year, amounting to an estimate of P4 trillion.

Mr. Singson added that awareness would be vital for Filipinos to identify and easily steer clear of scams in their current forms.

In its move to refresh the campaign, the FSF recognized that active fraud syndicates are global scaling, tech-enabled, and more evasive, rendering the initial PYM safeguards 鈥渘o longer enough.鈥�

THE ARMAMENT AND ITS LOGISTICS
The PYM campaign has been rolled out through the multi-pronged efforts of the FSF by each member institution according to its given role.

The BSP leads in spreading the campaign鈥檚 visibility with strategically placed posters, art-cards, and infographics in high traffic places both online and offline, primarily targeting underserved communities.

The Securities and Exchanges Commission mainly boosts the campaign鈥檚 digital engagement with postings of educational short videos or reels that make financial concepts digestible and emphasize protecting money against scams.

The Insurance Commission directly reaches out to Filipinos with SMS tips to remind them of consumer safety and to verify who or what they are dealing with financially.

And lastly, the Philippine Deposit Insurance Corp. amplifies the campaign through radio interviews, reminding offline Filipinos to proactively safeguard their deposits.

鈥淔SF CPEC believes that when financial regulators speak with one voice, the message cuts through the noise,鈥� said the central bank.

According to data provided by the BSP, 50,000 campaign posters have been printed and distributed nationwide from August.

The first batch of educational reels had already been posted, accumulating 178,000 views as of early December, with more content being prepared for release in later dates.

Radio segments and text message advisories have also been prepared for rollout to reach Filipinos without access to social media platforms.

The renewed campaign is set to strategically roll out in phases up to 2028, with the goal of behavioral changes in Filipinos and improved sensitivity to encroaching threats.

鈥淪cams evolve, so must our shields. Protect Your Money started as a warning. Today, it is a call to empowerment,鈥� the BSP said.

TACTICAL ADVICE
Mr. Guillermo said that the most effective way the campaign could spread awareness on cyber threats and cybersecurity would be in a more direct and personal approach.

鈥淚n posting awareness campaign advertisements online or in banks, what are the chances passersby and customers will read these? The best step to expand awareness is to talk to the people,鈥� he said.

Moreover, Mr. Guillermo said that the most vulnerable to scams are those in far-flung areas and are newly connected to online financial platforms, saying that they may not be reached through the campaign鈥檚 current methodology.

Mr. Singson added that coordinating with and mobilizing various communities that make up the masses would be a strategic move in the campaign鈥檚 execution.

He added that partnerships with various clubs and local governments would greatly help in connecting with the people and improving their overall digital literacy.

鈥淎 successful [educational effort] I have seen is that of a small bank which went to Zumba classes of senior citizens 鈥� providing their drinks and snacks 鈥� and eventually teaching them financial literacy,鈥� he said.

The experts said that artificial intelligence (AI) and deep fake technology loom as formidable tools that fraudsters use to empower their trickery.

鈥淚 have personally seen investment traps on Facebook using AI generated videos of [Filipino billionaires], claiming quick returns on supposed investments,鈥� he said.

鈥淒eepfake [technology] is what鈥檚 new on the horizon, to run cryptocurrecy, investment, and recovery scams,鈥� Mr. Guillermo added.

A deepfake, as defined by Merriam-Webster, is an image, recording, or video altered and edited to have an entirely different person deliver the message or action being shown.

鈥淔or example, [the scammers] can capture my [persona] and post it, using my identity to run a recovery scam,鈥� said Mr. Guillermo.

A recovery scam is aimed at those previously victimized by financial loss or other forms of fraud, using the disguise of an assistant in recovering the money to bait for even more information.

REINFORCEMENTS EN ROUTE
FSF CPEC said that the campaign is open to cooperating with schools, local governments, media organizations, and digital platform advocates in empowering its information drive.

Mr. Singson said that the CSCP is open to supporting this push for grassroots learning which 鈥渢hey have already been doing.鈥�

鈥淭he way we do it is we deliver short cyber hygiene lessons [in] schools… we can partner up with both the national and local government to push for more digital literacy for everyone,鈥� he said.

Moreover, Mr. Singson said that the CSCP could provide the FSF CPEC with developing cyber threats in the Philippines and ASEAN countries to spread awareness in advance.

Meanwhile, Mr. Guillermo said that the PNP anti-cybercrime group could aid in highlighting dangers in cyberspace by giving threatened institutions a heads-up based on recurring complaints.

鈥淲e [can track], based on the complaints, the lapses in financial institutions procedures and collection of information, and talk to them about it,鈥� said Mr. Guillermo.

The BSP said that rolling out the 鈥渃ollaborative model鈥� of the PYM campaign will continue to expand moving forward, ensuring that protection and empowerment are promoted together.

FOR MILLIONS of Filipinos, sending money home no longer means standing in long queues. Digital remittance platforms have transformed the process into a few taps on a smartphone 鈥� making financial services accessible to families across the archipelago and the world.

With the Philippines embracing digital change, the way families send and receive remittances are being transformed.

Visa鈥檚 Money Travels: 2025 Digital Remittances Adoption Report highlights global trends in how people send and receive money, pinpointing key areas for growth. The report also explores the reasons behind remittance use and examines consumer perceptions of digital transaction security.

According to the report, digital remittance adoption in the Philippines continues to grow, with most people preferring digital apps for transactions. About 74% of senders and 66% of receivers use digital apps, making them the dominant method. The second most common approach is sending money digitally from a physical location.

Banks and regulators, including the Bangko Sentral ng Pilipinas (BSP), are collaborating to ensure the digital shift promotes financial inclusion. Both emphasize that education and infrastructure are critical to success.

鈥淭his can start with the promotion of financial literacy through continuous programs to educate all Filipinos on digital services, including PDOS (Pre-Departure听 Orientation Seminars), and Filipino Community Events abroad,鈥� said Rizal Commercial Banking Corp.鈥檚 (RCBC) Transaction Banking Group.

It also stressed the need for 鈥渄eveloping tailored products 鈥� specifically user-friendly, affordable digital offerings for Overseas Filipino Workers (OFWs) and those with limited digital literacy.鈥�

The BSP had a similar sentiment, noting that it continues to promote financial inclusion and broaden access to digital financial services nationwide, with particular emphasis on underserved rural and regional communities.

These initiatives include interoperable electronic payment streams like PESONet and InstaPay, QR-based systems, and low-cost Basic Deposit Accounts (BDAs) designed for unbanked Filipinos.

In terms of integrating digital remittance services into their platforms, banks are embedding digital remittance options into mobile apps and web platforms.

鈥淧hilippine banks are integrating digital remittance services primarily by offering multiple online channels that are accessible via web and mobile platforms,鈥� RCBC explained.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said that banks are partnering with global payment networks to enable instant transfers and introducing hybrid solutions that start digitally but allow cash-out options 鈥� meeting the needs of both tech-savvy users and those who prefer traditional methods.

The BSP complements these efforts by supporting digital banks and e-wallets.

鈥淒igital banks and e-wallets have broadened financial access by offering streamlined paperless account opening, instant credit options, and mobile-based financial services,鈥� the BSP noted, citing the surge in e-wallet accounts to 393.6 million in 2023 from 257.5 million in 2022.

USER EXPERIENCE
In Visa鈥檚 report, users cited ease of use and strong security as the main benefits of digital remittances, with nearly half of senders and over half of receivers emphasizing convenience.

鈥淯ser experience can drive adoption by positioning the bank as the one-stop shop for all OFW transactions,鈥� RCBC said.

They emphasized the need for apps that allow clients to manage accounts and send remittances in one place.

They added that this also involved creating dependable, user-friendly financial tools tailored for OFWs, migrants, and their beneficiaries.

Mr. Asuncion suggested simplifying interfaces, integrating multilingual support and adding features like 鈥渂iometric authentication and automated currency conversion鈥� to make transactions faster and more intuitive.

Safety, privacy, and speed were also consistently cited as an advantage.

Security perceptions strongly favor digital apps, which are widely considered safe for both sending and receiving funds. In contrast, physical remittance methods are viewed as less secure, with only 3% to 6% perceiving them as safe across the Asia Pacific.

鈥淓nsure that effective security measures are in place,鈥� RCBC advised.

It emphasized that banks must prioritize strong security measures such as encryption, multifactor authentication, and fraud detection to safeguard user data and transactions.

Equally important is maintaining transparency in operations to foster customer trust.

鈥淭his means clear communications on fees and exchange rates and Terms & Conditions, adherence to [government] compliance and regulatory requirements related to remittance, and reliable customer service support.鈥�

Meanwhile, 鈥渢he BSP is strengthening its regulatory environment to ensure those expectations will consistently be met,鈥� the central bank said, referencing Circular No. 1195 on timely redress mechanisms and Circular No. 1198 on safeguarding customer funds.

It added that 鈥済uided by the National Payment Systems Act (NPSA) and the National Retail Payment System (NRPS) Framework, the BSP requires all operators of payment systems (OPS) and payment service providers (PSPs) to register and operate under sound governance, effective risk management, and strong consumer protection standards.鈥�

Despite these advantages, high fees remain the biggest pain point. For digital transactions, 43% of senders and 30% of receivers report concerns about costs. Physical remittances face similar issues, with 45% of senders and 29% of receivers citing high fees as a problem.

Mr. Asuncion suggested 鈥渋nnovations like blockchain-based transfers, partnerships with local e-wallets, and tiered pricing models鈥� to lower costs.

Meanwhile, RCBC emphasized transparency. Stating that banks should 鈥減rovide a definitive breakdown of the remittance charges鈥� to reduce dissatisfaction and encourage loyalty.

At the same time, 鈥渢he BSP issued Memorandum No. M-2024-015 to provide guidance to BSP supervised institutions (BSIs) on setting fees for electronic payment services.鈥�

This aimed to ensure pricing remains fair, accountable, and transparent, aligned with the principles of the NRPS Framework and the Financial Consumer Protection Act.

鈥淭hese measures will help ensure that pricing remains responsive to market dynamics, technological advancements, and evolving consumer needs,鈥� said the BSP.

UNDERSTANDING REMITTANCE BEHAVIOR
Visa鈥檚 research showed 76% and 82% of Filipinos send and receive remittances once per year.

The primary reason for sending money were unexpected needs, accounting for 41% of Filipino respondents, while 39% of Filipino鈥檚 cited receiving regular remittances.

Contrary to the report, RCBC said most OFWs send remittances monthly.

鈥淥nce a month for their family鈥檚 monthly allowances/expenses, extra sending twice a year for tuition and Christmas allowance of the family,鈥� RCBC clarified.

It added that digital financial services should ensure 24/7 access for emergency remittances and enable real-time transfers for regular ones, while technical and support teams work to prevent downtime and transmission issues.

This pattern highlights the need for flexible, event-driven financial products and reliable platforms for both emergency and regular transfers.

鈥淭his can be seen as a strong indicator that while digital channels are trusted, there remains room to make them part of everyday financial behavior,鈥� the BSP added.

The BSP is expanding digital payment use cases, such as merchant transactions, transport fares, bills, and government disbursements so Filipinos can rely on them for everyday financial needs, not just occasional ones.

THE ROAD AHEAD
Looking ahead, sending and receiving of remittances are projected to decline over the next twelve months with 7% and 44%, respectively, staying relatively flat to 2024.

鈥淲hile this is a global standpoint, the remittance business in the Philippines is increasing,鈥� said RCBC.

To sustain engagement, they recommend 鈥渓owering or waiving front-end and back-end remittance fees, offering better exchange rates, and potentially waiving any associated taxes.鈥�

It stated this would keep Filipinos, especially those working abroad, using trusted remittance channels.

鈥淚n parallel, the BSP is advancing initiatives that make cross-border payment systems faster, cheaper, and more transparent.鈥�

An example of this is participating in Project Nexus, a Bank for International Settlements-led initiative to link domestic instant payment systems, aiming to make cross-system transactions faster and more efficient.

鈥淚n April 2025, the five founding central banks 鈥� India, Malaysia, the Philippines, Singapore, and Thailand 鈥� incorporated Nexus Global Payments (NGP) in Singapore to operationalize the scheme while the BSP remains to be involved the ongoing Project Nexus Phase 4,鈥� said the central bank.

POLICY EASING by the Bangko Sentral ng Pilipinas (BSP), tariffs imposed by the United States, and the ongoing flood control corruption scandal shaped the country鈥檚 financial markets in the third quarter, analysts said.

The Philippine Stock Exchange index (PSEi), the country鈥檚 barometer for the stock market, closed at 5,953.46 in the third quarter, down by 18.1% from 7,272.65 in the same quarter last year.

On the other hand, the peso appreciated by 3.9% to P58.20 against the dollar as of end-September from P56.03 a year ago, according to data from the Bankers Association of the Philippines.

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Yields on government securities rose by an average of 2.59 basis points (bps) year on year, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates published on the Philippine Dealing System鈥檚 website as of Sept. 30.

The BSP鈥檚 shift to a more dovish stance reflected in its consecutive rate cuts influenced the performance of domestic markets during the period, according to analysts.

Just last week, the central bank slashed again its policy rate by another 25 bps, bringing the key rate to over three-year low of 4.5%. It also signaled that the easing cycle nears its end.

It has so far trimmed borrowing costs by two full percentage points since it began its easing cycle in August last year.

鈥淩educed borrowing costs incentivized capital formation and supported investment momentum and economic activity, despite external headwinds and domestic governance concerns,鈥� the central bank said in an e-mailed reply to questions.

According to the BSP, the present interest rate environment helped in credit expansion and in maintaining stability in the domestic financial markets.

鈥淲hat we saw from this easing cycle was a 鈥楢 Tale of Two Cities鈥� in Q3 鈥� the local stock market was tepid while the bond market received much interest,鈥� Marco Antonio C. Agonia, an economist from the University of Asia and the Pacific, said in an e-mail.

Mr. Agonia said the response in local equities was muted because market players anticipated the rate cuts, contrary to the local secondary market where 鈥減articipants scrambled to lock in yields within the easing cycle.鈥�

For economist Reinielle Matt M. Erece of Oikonomia Advisory and Research, Inc., the markets鈥� reaction to the key rate reduction was anticipated, with bond yields already factoring in the move, leading to their decline.

However, he said equity markets continued to move sideways due to investors鈥� concern about corruption, global trade tensions, and weaker currency.

Sharing the same sentiment, Nicholas Antonio T. Mapa, chief economist of Metropolitan Bank & Trust Co., said in an e-mail that the BSP鈥檚 policy easing would help support moderating growth momentum amid uncertainty.

鈥淎lmost everyone was expecting BSP to retain their dovish stance given target consistent inflation and expectations for growth momentum to stay challenged,鈥� he said.

Despite the rate cuts, Mr. Mapa said investors remain cautious given persistent concerns about the economic and geopolitical outlook for the Philippines.

In the third quarter, the Philippine economy grew 4%, a sharp slowdown from the 5.5% growth in the second quarter and the 5.2% logged in the same period in 2024.

Government spending increased by 5.8% in the third quarter, slowing down from 8.7% in the previous quarter, but faster than the 5% growth recorded in the same period last year.

This followed after the delays and controversies surrounding flood-control infrastructure projects.

鈥淭he ongoing infrastructure spending controversy exerted downward pressure on investor sentiment and domestic market performance,鈥� according to the BSP.

On the same note, Mr. Agonia said the ongoing flood control scandal soured investors鈥� mood in the stock market.

鈥淲hile trade uncertainties weighed on investors鈥� minds in the first half of the year, governance issues became the defining brush stroke for the Q3 picture,鈥� he said, adding that a definite action is needed to regain investors鈥� optimism.

He noted that the US Fed鈥檚 September rate cut boosted the PSEi, but gains were short-lived as new revelations about the flood-control scandal emerged.

US TARIFFS
The 19% US tariff imposed on most Philippine goods, effective Aug. 7, also affected markets during the period.

鈥淭he heightened uncertainty over the implementation of US tariffs weighed on domestic investor sentiment during the quarter,鈥� the BSP said.

Based on the central bank鈥檚 Business Expectations Survey, business sentiment became less optimistic in the third quarter amid global headwinds from higher US tariffs, geopolitical tensions, and weaker external demand.

For Mr. Agonia, the tariff announcement alleviated some of the uncertainty that had weighed market players in the previous quarters concerning the implementation of US tariffs.

鈥淢arkets seemed to react positively to the definite and comparatively lenient tariff stance given to the Philippines,鈥� Mr. Agonia said.

Meanwhile, for Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco, the confirmation of the US tariff midway through the quarter 鈥渨as neither here nor there in terms of market impact鈥� primarily because exports are a minor factor for the country鈥檚 economic growth.

鈥淔or the most part, the Philippines is one of the 鈥榳inners鈥� in the global tariff setup so far, even though its rate ended up being slightly higher than the one first proposed in Liberation Day,鈥� he said.

For Mr. Mapa, the ongoing US tariffs weighed on the country鈥檚 overall growth, a key concern for investors.

However, 鈥渁lthough traders and exporters remain wary over developments on the global trade front, concern appears to be shifting to domestic growth concerns more than to US tariff policy,鈥� Mr. Mapa added.

Mr. Agonia said other challenges for financial markets in the third quarter included the 鈥済host month,鈥� bad weather, and slight peso depreciation.

Meanwhile, supportive factors included 鈥渂enign domestic inflation, within-expectations Q2 gross domestic product (GDP) growth, and good Q2 corporate earnings,鈥� he added.

KEY FACTORS TO MONITOR
Heading into the fourth quarter, Mr. Chanco sees further rate cut expectations as markets continue to face pressure based on domestic factors.

鈥淎s things stand, our base case is that the Board will cut again in December and in early-2026 by a total of 50 bps (two more 25-bps cuts),鈥� he said.

Mr. Agonia said the country鈥檚 financial markets could see cautious gains, supported by the seasonal holiday boost and catch-up government spending.

On the same note, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said markets expect a seasonal rise in remittances and peso conversions to fund the Christmas spending in the latter part of the fourth quarter, a pattern observed for decades.

He also anticipates further rate cuts by the US Fed and the BSP in the coming months, amid benign inflation, to remain an offsetting positive factor for the economy.

FIXED-INCOME MARKET
BSP: The bond market is expected to be supported by the low-interest rate environment, easing global monetary conditions, and robust demand from domestic investors.

Agonia: Relatively low inflation and a more dovish BSP should see the bond market flourishing into Q4 and onwards. Volatility in the US markets may encourage investors to flock to the Philippine bond market.

Erece: Expectations of continuous rate cuts can drive market rates downwards. Furthermore, concerns about economic slowdowns may also drive demand for debt securities over equities to lock in consistent profit through interest rates.

EQUITIES
BSP: Ongoing concerns over public spending on flood control projects weigh down market sentiment. However, slower global trade and the sustained strength of the US dollar are likely to influence foreign investment into equities.

Ricafort: Further improvement in ESG (environmental, social, and governance) compliance by the government and some listed companies may be needed for the PSEi to break out higher from the familiar range of 6,000-7,000 seen for more than 13 years already, particularly the government鈥檚 anti-corruption measures and further elevating governance standards.

Agonia: Local equities may continue to be lukewarm, especially as analysts scale down their Q3 GDP growth forecasts. Despite this, some factors guarding the downside may include benign inflation, healthy employment figures, potentially strong Q3 corporate earnings, and some holiday remittance relief for the peso-dollar rate.

Erece: A potential year of loss can be anticipated given disappointing economic growth, persistent external headwinds, and weak public sector credibility.

FOREIGN EXCHANGE MARKET
BSP: Concerns over US fiscal sustainability, US trade policy measures and risks to the US Fed鈥檚 stability and independence could weaken the US dollar and support the peso. However, ongoing geopolitical tensions, notably in the Middle East, may prompt safe-haven demand for the dollar and put depreciation pressure on the peso. Domestically, the peso could find support from steady macroeconomic fundamentals and resilient FX inflows from BPO revenues, tourism, and Overseas Filipino Workers鈥� remittances.

Ricafort: Still relatively benign local inflation data tends to fundamentally support the peso exchange rate with more purchasing power for the local currency.

Agonia: The holiday remittance wave may also provide relief for the peso-dollar rate towards the P57-P57.5 range. However, a potential BSP rate cut in December and a larger Q4 trade deficit could add to some depreciation pressure moving forward.

Erece: The recent corruption scandals can drive confidence on the country down. Thus, inducing capital outflows and less demand for the peso. These events can cause the peso to depreciate. Despite a dovish Fed, if investor sentiment overwhelms the foreign exchange effects of monetary policy, the Peso may continue to depreciate. However, I think the BSP will prevent the currency from reaching P60 levels through their own interventions.

By Lourdes O. Pilar, Researcher

SHARE PRICES of listed universal and commercial banks slipped at the close of the third quarter as loan growth moderated and policy rate cuts continued to squeeze lending margins.

However, analysts still expect a rebound in the last quarter of this year.

The Philippine Stock Exchange index (PSEi) fell by 18.1% year on year to 5,953.46 at the end of the third quarter, worse than the 6.5% decline in the second quarter.

The decline was reflected in the financials subindex which also declined by 10.6% during the period.

The third quarter saw 10 out of 13 largest banks鈥� stock prices contract annually as of end-September. Philippine Trust Co. led the decliners with 25.7% drop during the period, followed by Security Bank Corp. (-25.6%) and Union Bank of the Philippines (-22%).

On the other hand, three U/KBs saw their share prices grow in the third quarter. Philippine National Bank (PNB) grew the most with 89.3% surge. Other lenders which recorded growth were China Banking Corp. (21.6%), and East West Banking Corp. (17.8%).

鈥淭he decline in most listed banks was largely due to investor concerns over the impact of recent policy rate cuts on lending margin amid backdrop of moderating loan growth,鈥� Ralph Jonathan B. Fausto, research associate in Chinabank Securities Corp., said in an e-mail.

Business loan appetite notably softened amid prevailing uncertainties while asset quality likewise came under scrutiny, with the continued expansion in high-yielding segments resulting in higher provisioning requirements which weighed on banks鈥� bottom-line performance, Mr. Fausto said.

The Monetary Board trimmed the key policy rate by 25 basis points (bps) to a three-year low of 4.75% in October, while inflation in the first nine months averaged at 1.7%, matching the central bank鈥檚 full-year forecast.

The Monetary Board slashed its key rate for a fifth straight meeting in December by another 25 bps, bringing the target reverse repurchase rate to an over three-year low of 4.5%.

The Bangko Sentral ng Pilipinas (BSP) also signaled that the current easing cycle, which started in August last year, approaches its end.

Aggregate net income of universal and commercial banks grew by 4.2% to P283.16 billion as of end-September from P271.73 billion the previous year, data from the BSP showed.

Gross total loan portfolio of these big lenders rose by 8.8% to P15.03 trillion as of end-September from P13.81 trillion last year.

Likewise, the big banks鈥� gross nonperforming loans (NPLs) ratio narrowed down to 3.02% in September from 3.18% a year ago.

The big bank鈥檚 net interest margin (NIM) 鈥� a ratio that measure banks鈥� efficiency in investing their fund by dividing annualized net interest income to average earning asset 鈥� improved to 4.2% in the third quarter from 4.06% recorded in the same period last year.

Provision for credit losses by these big banks reached P116.63 billion, up by 60.9% from P72.48 billion in September 2024.

Kervin Laurence Sisayan, head of research of Maybank Securities Philippines, said that most of the banks were more conservative in third quarter due to the ongoing slowdown in the economy.

鈥淣ote that we鈥檝e seen gross domestic product (GDP) growth slower than expected mostly due to weaker gross capital formation. As a result, majority has increased credit costs to account for any potential weakness for example in the construction sector,鈥� said Mr. Sisayan.

For the third quarter, the Philippine economy expanded by 4%, easing from the 5.5% of the previous quarter growth and 5.2% expansion in the last three months of 2024.

However, this was still below the 5.5%-6.5% growth target of the government.

鈥淎 decelerating economy as evidenced by the dismal 4% 3Q25 GDP outturn amid weather-related disruptions that weighed on consumption, and the corruption scandal that curtailed government spending and reduced investment activity,鈥� Abigail Kathryn L. Chiw, first vice-president and head of research at BDO Securities Corp., said in an e-mail.

The Marcos administration faces increasing scrutiny over flood control projects, where billions of pesos in public funds were diverted through padded contracts and shell companies. The Department of Finance said that economic losses from corruption in flood control projects may have averaged P118.5 billion annually from 2023 to 2025.

At present, the Independent Commission for Infrastructure and Congress are conducting separate investigations to individuals involved in public works projects, including claims of budget manipulation and contractor collusion.

STANDOUTS
Investors should closely monitor the trajectory of interest rates, as the BSP easing cycle will impact NIM, Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said. Traders should consider near-term volatility due to potential adjustments in monetary policy expectations and global risk sentiment.

鈥淒espite the broader sectoral weakness, BDO and BPI stood out due to their resilient loan growth and strong noninterest income performance. BDO鈥檚 diversified business lines and solid capital position helped it weather market volatility,鈥� he said.

鈥淭hese banks demonstrated operational agility and managed to sustain profitability despite external challenges,鈥� Mr. Arce added.

Mr. Fausto said that BPI continue to deliver mid-teens return on equity (RoE) underpinned by its deliberate strategy to continue scaling its consumer loan portfolio alongside the revenue uplift and efficiency gains from tech investments. Meanwhile BDO also stood out during the quarter due to sustained double-digit growth in corporate lending.

鈥淏DO is the bank that stood out the most given the stable and high-quality growth. What we like about BDO is the improvement in quarterly RoE, bringing it closer to mid-teens level. In addition, they continue to see above industry loan growth despite the economic slowdown,鈥� said Mr. Sisayan.

Mr. Sisayan also said that in the near term, they might see overall weakness in profitability for banks as they increase provisions for bad loans.

鈥淔or short term we are currently looking for the local currency movement as the weaker peso could bring lower inflows and liquidity for the banks. The declining foreign direct investment (FDI) should also be watch as lower FDI 听 could translate to slower economic growth and loan growth impacting the banks performance,鈥� Jash Matthew M. Baylon, equity analyst at The First Resources Management and Securities Corp., said in a Viber message.

BSP reported that net inflows of FDI into the Philippines slumped by 25.8% in September to $432 million from $830 million in the same month in 2024, amid a drop in net investments in debt instruments.

RATE CUTS
Mr. Sisayan said that lower policy rates would put downward pressure on asset yields or loans.

鈥淗owever, we have yet to see the policy rate cuts have a significant impact to asset yields of banks in the past 12 months. In fact, the decline in NIMs has been quite minimal especially if we take into account the banks鈥� pivot towards lending more to the consumer segment,鈥� said Mr. Sisayan.

He also added that the trend remains that policy cuts will negatively affect NIMs and profitability.

鈥淚n theory, lower rates should make funding cost cheaper and spur loan growth. But if most corporates are cautious to expand given the economic slowdown, this might not translate to higher demand for loans in the near term,鈥� he added.

Luis A. Limlingan, head of sales at Regina Capital Development Corp., said that in the medium term, these developments are 鈥渂eneficial鈥� for banks as lower policy rates can encourage more borrowing.

鈥淐heaper loans make credit more accessible to clients, which helps support stronger loan demand. As loan growth picks up, banks are likely to see a corresponding boost in revenues. But in the near term, pressured margins are one of the key factors the market is already pricing in,鈥� Mr. Limlingan said.

Ms. Chiw said that subdued inflation and easing interest rates are positive for consumption and supportive of growth.

鈥淲e believe these conditions are constructive for banks, as it encourages lending activity and fee income growth as transaction volumes increase. We also think NIM pressures from rate cuts could be mitigated by the rising mix of higher-margin consumer loans and cultivating lower-cost CASA deposits to support loan expansion,鈥� she said.

Mr. Baylon thinks that the BSP鈥檚 monetary policy reduction has a balanced effect on the country鈥檚 financial sector, as rate cutting cycle at its December meeting could improve the spending in the country which may show a recovery on economic activity.

Mr. Arce said that while lower rates could compress NIMs and reduce interest income, they may also stimulate credit demand from consumers and businesses, supporting loan growth.

鈥淭he benign inflation outlook enhances purchasing power and reduces credit risk, improving banks鈥� asset quality. Overall, in the medium term, the sector is poised for steady but moderate growth, as profitability will hinge more on volume expansion and cost efficiency than margin gains,鈥� Mr. Arce said.

OUTLOOK
Analysts expect a rebound for listed banks in the last quarter of this year.

Mr. Arce said that the fourth quarter of 2025 is expected to bring a modest rebound for the sector as lending activity gradually picks up and the holiday season boosts consumer spending.

鈥淗owever, the sector鈥檚 overall growth may remain tempered by cautious corporate lending and lingering global uncertainties. BDO, BPI, and MBT are projected to lead the sector in terms of earnings momentum, while mid-tier banks like RCB and EW may post selective growth due to niche lending and digital strategies,鈥� Mr. Arce said.

鈥淲e expect banks to perform in line with their current trajectory, as we do not see any significant developments that could affect profitability drastically through yearend. Loan growth is also likely to remain steady, with the current trend showing a slowdown despite the recent rate cut from the BSP,鈥� Mr. Limlingan said.

Mr. Fausto expects listed banks to end fourth quarter of 2025 on a solid footing supported by healthy loan demand from corporates earmarking for expansion plans and working capital requirements for 2026.

鈥淐onsumer lending is also poised to remain strong, driven by increased credit card and personal loan utilization amid holiday-driven spending. Given that most bank stocks have declined year-to-date, current valuations appear more attractive which could potentially prompt investors to reconsider names with still durable growth prospects and support potential share price recovery over the medium term,鈥� said Mr. Fausto.

Mr. Baylon also shared that the banking sector will show improve provisions as higher consumer spending and consumer capacity to pay off their loans which may benefit banking provision.听

鈥淢oreover, the expectation of lower interest rates for the year end could boost loan demand for both retail and corporate which may offset the declining net interest margin. However, we still consider the revised GDP outlook for the full year 2025 which may bring a more cautious approach on its corporate loans segment,鈥� Mr. Baylon added.

However, Ms. Chiw expects their covered banks of lower earnings growth.

鈥淥verall, we expect our covered banks to deliver slower earnings growth of 5.4%-8.3% for this year from 6%-9.7% previously, on account of preemptive provisioning costs and moderating loan growth trends in recent months, which is reflective also of slackening GDP performance,鈥� said Ms. Chiw.

鈥淗owever, lower borrowing costs may result to a pickup in lending activity and a reduction of NPL stress, which in turn would allow banks to cut back on provisioning costs that could also lift earnings in the ensuing quarter,鈥� she added.

This was over five times the bank鈥檚 initial target of P3 billion, it said in a disclosure to the stock exchange on Thursday.

鈥淭he issuance marks the bank鈥檚 successful return to the domestic debt capital market since 2019, garnering an orderbook that was more than 5.2 times oversubscribed the initial target size on back of the strong support from in-stitutional and retail investors,鈥� PNB said.

鈥淭he net proceeds from the bonds will be used to finance or refinance eligible projects under PNB鈥檚 Sustainable Financing Framework consistent with the ASEAN Sustainability Bonds Standards, a reflection of the PNB鈥檚 resolute commitment towards sustainable financing in tandem with the bank鈥檚 growth mode.鈥�

The bonds were issued, settled, and listed on the Philippine Dealing & Exchange Corp. on Thursday.

Broken down, PNB raised P10.88 billion from three-year Series A ASEAN Sustainability Bonds that were priced at 5.4877% per annum. It also issued P4.82 billion in five-year Series B ASEAN Sustainability Bonds, which carry an interest rate of 5.7764% per annum.

The papers were sold at a minimum investment amount of P100,000 and in increments of P50,000 thereafter.

This marked the first issuance from the bank鈥檚 P50-billion bond and commercial paper program that was approved earlier this year.

PNB鈥檚 investment banking arm PNB Capital and Investment Corp., ING Bank N.V. Manila Branch, and Standard Chartered Bank were the joint lead arrangers and bookrunners for the transaction.

Meanwhile, PNB, ING Bank, and Standard Chartered were the selling agents.

PNB saw its net income rise by 25.79% year on year to P6 billion in the third quarter, backed by higher revenues. This brought its nine-month profit to P18.51 billion, up by 22.91% from P15.06 billion a year pri-or.

Its shares dropped by 10 centavos or 0.2% to close at P50.90 each on Thursday. 鈥� Aaron Michael C. Sy

The bank’s attributable net profit climbed by 4.34% to P37.28 billion in the first nine months of 2025 from P35.73 billion a year ago, it said in a disclosure to the stock exchange on Tuesday, which it attributed to “solid loan growth, improving margin trend, healthy trading income alongside well-managed cost growth.”

For the third quarter alone, its earnings rose by 2.56% year on year to P12.43 billion from P12.12 billion.

鈥淥ur prudent approach in expanding our core businesses continued to support our performance in the first nine months. We鈥檙e confident that the Philippines鈥� long-term growth story remains strong,” Metrobank President Fabian S. Dee said.

鈥淲e continue to be committed in helping our clients seize opportunities for growth as we navigate together any challenges and uncertainties on our journey ahead.”

The bank’s net interest income grew by 7.1% to P91.8 billion in the nine months through September, supported by a 10.8% increase in its gross loans to P1.9 trillion.

Non-interest income increased by 5.3% to P25.4 billion.

Meanwhile, its operating expenses increased by 1.7% year on year, with its cost-to-income ratio declining to 49.8% from 52.2%. 鈥� Bettina V. Roc

The article 鈥淟isted banks鈥� share prices rise in Q2鈥� by Heather Caitlin P. Ma帽ago in 大象传媒鈥檚 quarterly banking report published on Sept. 15 misstated that Philippine Savings Bank (PSBank) posted a 50.8% share price decline in the first half, but it actually rose by 6.4%. The article also misstated that Bank of Commerce stock contracted by 94%, but it went up by 7%.

We deeply regret the errors and extend our apologies to PSBank, Bank of Commerce and our readers.

BANKING STOCKS rose in the second quarter as rate cuts coupled with steady inflation impacted profit margins, analysts said.

They also cautioned investors to further monitor rate cuts from the Bangko Sentral ng Pilipinas (BSP) and further actions by the US Federal Reserve.

The Philippine Stock Exchange index (PSEi) inched down by 0.7% year on year to 6,364.94 at the end of the second quarter.

However, the financials subindex, which includes banks, climbed by 18.4% annually to 2,278.62 during the period.

During the period, 11 out of the country鈥檚 13 listed universal and commercial banks (U/KBs) posted growth in their share prices year on year.

Philippine National Bank (ticker symbol: PNB) led with 142.3% year-on-year surge. It was followed by Asia United Bank Corp. (AUB, 75.6%), China Banking Corp. (CBC, 69.9%), Philippine Bank of Communications (PBC, 37.6%) and BDO Unibank, Inc. (BDO, 19.2%).

Listed thrift bank Philippine Savings Bank also grew by 6.4% year on year.

Meanwhile, Philippine Trust Co. (PTC) stock contracted by 26.8%, year on year as of end-June while Union Bank of the Philippines鈥� (UBP) dropped by 4.5%.

Aggregate net income of universal and commercial banks grew by 3.1% to P184.46 billion as of end-June from P178.91 billion in the same period a year ago, data from the BSP showed.

Gross total loan portfolio of these big lenders rose by 11% to P14.7 trillion as of end-June from P13.25 trillion a year ago.

The big banks鈥� gross nonperforming loans (NPLs) ratio improved to 3.05% as of end-June from 3.21% the previous year.

Meanwhile, the big banks鈥� net interest margin (NIM) 鈥� a ratio that measures banks鈥� efficiency in investing their funds by dividing annualized net interest income to average earning asset 鈥� rose to 4.13% as of end-June from 4.04% recorded a year earlier.

Provision for credit losses by these big banks reached P71.81 billion, up by 67.6% from P42.84 billion in June 2024.

RATE CUTS AND TARIFFS
Luis A. Limlingan, head of sales at Regina Capital Development Corp., said that BSP rate cuts are one of the primary drivers of the performance of listed banks for the second quarter.

He pointed out that reduced interest rates not only encourage borrowers to tap into cheaper loans 鈥� driving loan growth and broadening the banks鈥� customer base 鈥� but also led to increased profits from trading activities.

鈥淥verall, the rate cuts created a dual benefit: stronger loan growth and enhanced investment returns, both of which supported the banking sector鈥檚 bottom line,鈥� Mr. Limlingan said in a Viber message.

Kervin Laurence S. Sisayan, vice-president and head of research at Maybank Securities Philippines, Inc., said that another BSP movement, which influenced banks鈥� performance during the period, were the reserve requirement ratios (RRRs) jumbo cut made as of end-March.

鈥淎 cut in RRR would reduce the pressure on funding costs for banks in general and would typically be margin accretive,鈥� he said in an e-mail.

As of end-March, the central bank reduced RRRs by 200 basis points (bps) to 5% for U/KBs from 7%. Additionally, RRR for digital banks were also slashed by 150 bps to 2.5%, while the ratio for thrift lenders was lowered by 100 bps to 0%.

He added that subsequent cuts in policy rates have pushed industry asset yields lower, offsetting the potential improvement from the RRR cut.

For Abigail Kathryn L. Chiw, first vice-president and head of research at BDO Securities Corp., the steady improvement in the macroeconomic conditions of the Philippines helped sustain strong loan demand on the back of corporate and consumer segments.

鈥淓asing funding costs and rising mix of higher-margin consumer loans also resulted to sequential upturns in lending margins,鈥� said Ms. Chiw in an e-mail.

However, she also said that the aggressive expansion in unsecured consumer loans, such as credit cards, prompted banks to increase their provisions to guard against NPL risks which has dragged earnings.

Ralph Jonathan B. Fausto, research associate in Chinabank Securities Corp., said that outlook for monetary policy from the BSP and the US Federal Reserve, coupled with uncertainties in external trade policy, remain key drivers during the period.

These factors, he said, have direct implications for loan demand and net interest margins.

鈥淭he sustained expansion of listed banks into the consumer lending segment has been underpinned by stable and low domestic inflation, and robust employment conditions 鈥� which continue to support a constructive outlook for household consumption,鈥� he said in an e-mail.

In June, headline inflation picked up to 1.4%, inching up from 1.3% in May. However, this was still slower than the year-earlier 3.7%.

In the six months to June, inflation averaged 1.8%, slower than the 3.6% average in the same period last year.

This prompted the central bank to implement a second straight rate cut, lowering the policy rate from 5.5% to 5.25%, marking its lowest level in two and a half years.

During its August policy meeting, the BSP reduced the target reverse repurchase rate by 25 bps bringing it down to 5% from 5.25%, the lowest rate in nearly three years, since November 2022.

Since its easing cycle in August 2024, the BSP lowered borrowing costs by a total of 150 basis points.

Jash Matthew M. Baylon, equity analyst at The First Resources Management and Securities said that aside from the BSP rate cuts, global uncertainty due to tariff wars added a cautious stance across business confidence which impacts banks鈥� operations.

In April, US President Donald J. Trump announced a reciprocal tariff rate of 17% on goods from the Philippines, but the implementation was postponed until July.

Then, in early July, he raised the tariff rate to 20% and after a meeting with Philippine President Ferdinand R. Marcos, Jr., Mr. Trump implemented a new tariff of 19% on Philippine goods, which took effect on Aug. 7.

STANDOUTS
BDO, PNB, Bank of Commerce (BNCOM), and CBC stood out in the second quarter amid loan expansions and strong earnings, analysts said.

For Mr. Limlingan, PNB and BNCOM stood out in terms of bottom line, 鈥減osting some of the highest returns among banks during the period.鈥�

鈥淸They] benefited from strong loan portfolio expansion and robust trading gains, reflecting sustained growth momentum,鈥� he said.

He added that banks remain aggressive in expanding their lending activities, buoyed by expectations of possible rate cuts in the next few months.

For Ms. Chiw, CBC stood out with robust earnings growth and return on equity for the quarter. The solid 18% earnings growth and 15% return on equity of CBC during the period was driven by strong loan expansion, improved NIMs, solid asset quality with a nonperforming loan ratio, and one-off foreclosure gains covering increased provisions.

For Mr. Fausto, BDO鈥檚 corporate loan growth accelerated in the second quarter, indicating a recovery in business borrowing after being dampened by US tariff uncertainties in the prior quarter.

Meanwhile, Security Bank Corp. (SECB) 鈥渞eported higher-than-anticipated provisions in [the first half of the year], largely attributable to its aggressive expansion in the credit card segment,鈥� he added.

For Mr. Baylon, smaller banks could maximize the current economic situation, which could potentially enhance their net interest margins in a lower rate environment. On the other hand, larger universal banks experience a negative impact on their earnings.

OUTLOOK
Ms. Chiw said that the central bank can deliver one more rate cut this year as inflation remains below the BSP target.

鈥淎ccommodative interest rates are supportive of growth, which should be a net positive for banks,鈥� she said.

She expects banks to deliver healthy earnings growth and sees lower borrowing costs could lead to an increase in lending activity and a reduction in NPL stress. This, in turn, would enable banks to reduce their provisioning costs.

鈥淰olatile financial markets may also provide trading gains or losses,鈥� she said.

Similarly, for Mr. Limlingan, he is supportive of further rate cuts from the BSP as it can allow banks to broaden their markets.

鈥淚n the short term, profitability may improve as trading gains strengthen. However, we also anticipate increased pricing competition among banks, as adjustments in product pricing could pose risks to their margins,鈥� he said.

He added that further rate cuts could boost banks鈥� revenues and bottom lines through several channels that benefit from a more dovish policy stance.

Mr. Sisayan expects recent policy rate cuts to put further pressure on NIMs.

鈥淲ith lower rates, and more clarity on global trade, the weakness in NIMs could be offset by stronger loan growth as corporates become more confident to pursue expansion plans,鈥� he said.

Chinabank Securities鈥� Mr. Fausto and BDO Securities鈥� Ms. Chiw advised investors to closely monitor loan growth, NIMs, and asset quality of banks.

Mr. Fausto said the BSP鈥檚 25-bp rate cuts in April and June are expected to help loans grow faster, especially within the corporate lending space.

鈥淣et interest margins, however, are expected to be broadly stable 鈥� with some seeing marginal uplift from lower funding costs,鈥� Mr. Fausto said.

He added that with major listed banks growing their high-yield loan segments, it鈥檚 important to keep an eye on credit costs and NPL ratios.

Additionally, Ms. Chiw said that key concerns right now are Mr. Trump鈥檚 erratic trade policies and attempts to undermine US Fed independence.

鈥淭hese may result to renewed interest rate and exchange rate volatility potentially hurting consumption and investment appetite,鈥� she said.

Moreover, for Mr. Baylon, investors should keep an eye on global events, especially decisions by the US Fed, since these can affect the local currency and foreign investments, which in turn influence bank operations.

He also anticipates that consumer and retail banking will be a major earnings contributor for large banks this year, driven by improved purchasing power and stronger domestic spending as inflation eases.

He added that even with the potential for a policy rate cut from the BSP, robust consumer activity may sustain credit demand, particularly for personal loans, auto financing, and credit cards.

鈥淭his volume-driven growth could help offset margin compression, positioning big banks to benefit from a more consumption-led recovery,鈥� he said. 鈥� HCPM

FILIPINO CONSUMERS are walking a financial tightrope 鈥� tightening belts, gripping wallets, and bracing for every shift in the economic winds.

In the second quarter, Filipino consumers are seen to be optimistic about their earnings but remain cautious. Consumers are adjusting their attitudes towards budgets and savings, despite the increase in their pay checks to brace for economic shocks.

This consumer behavior is reflected in a quarterly survey from . In its , it assessed the everchanging consumer attitudes based on the dynamics of income, debt, and identity theft.

1 of 3

鈥淭he report underscores a dual reality: optimism about future income coexists with persistent financial stress and caution,鈥� Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said in a Viber message.

He added that the report implies that consumer confidence is fragile and highly sensitive to economic headwinds such as inflation and job security.

For the banking industry, the future isn鈥檛 just about expanding credit access 鈥� it鈥檚 about earning trust through transparency, personalization, and education.

Mr. Asuncion said that banks that integrate financial wellness tools, alternative credit scoring, and proactive fraud protection will not only meet immediate needs but also position themselves as long-term partners in resilience.

鈥淭he winners will be those who shift from being lenders to becoming financial enablers,鈥� he said.

Development Bank of the Philippines (DBP) President and Chief Executive Officer (CEO) Michael O. De Jesus said that banks have the responsibility to improve financial literacy among the population.

But to do this, a better understanding of individual attitudes toward savings is needed.

SAVING SMARTER
Mr. De Jesus pointed out that saving is essentially setting aside the money we earn due to different reasons, and mostly these reasons for savings are valid enough but the challenge is not in 鈥減iling up cash鈥� but how we manage it.

鈥淪aving may be a 鈥榞ood idea,鈥� but it is never going to make one seriously wealthy unless you can save a massive proportion of your income and your income is massive as well,鈥� he said in an e-mail.

While saving is a commendable act, investing, on the other hand, can generate wealth, provided there is money to begin with.

鈥淪aving can be a virtue, but you have to move beyond keeping your money in savings and start investing to reap the full benefit,鈥� he advised.

He added that as financial institutions, providing consumers the knowledge (financial literacy), planning tools (wealth and asset management) and savings and investment products to achiever their life goals are necessary.

INCOME AND SPENDING
According to the TransUnion report, consumer financial health stayed mostly stable as 41% of consumers suggested a rise in their income for the past three months, while 73% of Filipino consumers expect a rise in come next year, an optimistic outlook on their financial futures.

Still, financial stress is evident with 44% of consumers expecting difficulties in paying bills.

This financial worry mirrors that consumers are cautious in spending and adjusting their savings, driven by concerns in inflation and job securities.

Still, the report highlighted that there was a 45% increase in emergency savings and a 47% cutback in discretionary spending in the past three months.

Moreover, some were upbeat in managing their finances by increasing savings and paying off debt faster.

鈥淪pending patterns reflected a balancing act between optimism and constraint,鈥� the report noted.

鈥淭his often leads to a 鈥榖unker鈥� mentality as consumers scrimp on spending and buttress their savings for the expected 鈥榬ainy days鈥� ahead,鈥� he noted.

He cautioned that if this 鈥渂ehavior鈥� cascades among consumers, it could lead to a recession. In turn, businesses may respond to reduce demand by cutting back on productions on their services and goods.

鈥淭he shift in savings behavior means many households adopt a more conservative mindset, prioritizing liquidity and financial safety versus 鈥榳ants鈥� spending 鈥� which benefits the consumer, the financial institutions, and the economy in the long run,鈥� Maybank Philippines said in an e-mail.

This provides peace of mind for consumers amid uncertainty and prevents them from falling into debt in emergencies. While they continue to spend, consumers will seek value to justify what they spend.

鈥淐onsumers may become more receptive to financial literacy campaigns and products framed around security, preparedness and long-term goals,鈥� Maybank said.

This indicates an increased demand for savings accounts, time deposits and low-risk investment products as the appetite for personal loans and credit card spending tempers.

鈥淗igher savings means better ability to lend out these funds to businesses,鈥� it said, which in turn will boost long-term growth and help strengthen the economy.

For Nicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co., this behavioral shift aligns with conventional economic thought as households shift their budgets to prioritize essential while cutting back on discretionary spending during challenging periods.

鈥淭he growth in personal loans have helped support domestic consumption throughout the period of elevated inflation, delivering robust household expenditure,鈥� Mr. Mapa said in an e-mail.

He added that as inflation slows, this should at least help restore some purchasing power to help households restore savings or pay down loan balances.

SAVINGS AND CREDIT BEHAVIOR
As highlighted by the report, rising prices, job security and interest rates were the sources of caution of consumers and financial institutions are taking countermeasure in addressing these financial woes.

For Rizal Commercial Banking Corp. Credit Cards President and CEO Arniel Vincent B. Ong, financial institutions can ensure their borrowers added value for using their credit cards on everyday essentials to help address rising prices and cost of living pressures

鈥淟enders can help address the concern on job security (and its resulting income uncertainty) by offering flexible payment programs for customers,鈥� Mr. Ong said in an e-mail.

For Mr. Mapa, the central bank鈥檚 lowering borrowing costs provide relief to households and firms.

鈥淟ower interest rates will help firms hire more workers or invest to bolster operations, resulting in increased efficiencies and or job creation,鈥� Mr. Mapa explained.

Latest government data showed inflation picked up 1.5% in August from 0.9% in July. This was the fastest reading since the 1.8% recorded in March.

A year earlier inflation rate was higher at 3.3%.

Meanwhile, in late August, the Monetary Board slashed the target reverse repurchase rate by 25 basis points (bps) to 5% from 5.25%, for a third straight meeting.

Since it began its easing cycle in August last year, the BSP has reduced borrowing costs by a total of 150 bps. In its last two meeting this year, it delivered two 25-bp cuts each in April then in June.

On the other hand, government data also showed that the Philippine economy expanded by an annual 5.5% in the April-to-June period, slower than the 6.5% growth in the same period last year.

However, this was a tad faster than the 5.4% in the first three months.

In the first semester, GDP growth averaged 5.4%, significantly slower than the 6.2% a year earlier.

The latest gross domestic product print (GDP) missed听 the lower end of the government鈥檚 5.5% to 6.5% growth target this year.

Results of the study also showed that 58% of Filipinos see access to credit as a 鈥渕ajor enabler鈥� of their financial goals. But even so, 57% had dropped their application or refinancing proposal due to fears of rejection resulting from income or work status and the high cost of new credit.

鈥淭o meet strong demand for credit while addressing fears of rejection and high costs, banks need to adopt a more inclusive and transparent lending approach,鈥� UnionBank鈥檚 Mr. Asuncion said.

This, he added, includes leveraging alternative data such as utility or rental payment history, for credit scoring to assist those with limited credit files.

He noted that ultimately, banks must position credit as an enabler of financial stability, not just consumption.

For RCBC鈥檚 Mr. Ong, an effective way for banks to adapt their lending approach is by utilizing nontraditional sources of data.

鈥淏anks have relied on a combination of traditional employment documents proof and data from credit bureaus 鈥� which means that first-time borrowers or those working in the gig economy have no access to credit,鈥� he said.

In this day and age where data is king, there are numerous other data points available that can help predict a borrower鈥檚 creditworthiness, Mr. Ong said.

鈥淔inancial institutions must make a strategic decision to leverage this alternative data in order to expand the population of credit-worthy individuals.鈥�

MANAGING FINANCIAL STRESS
It is worth noting enough that banks should invest in financial literacy or education to aid consumers in making informed decisions to adjust their spending and saving patterns amid inflationary pressures, and economic uncertainty.

For the Bangko Sentral ng Pilipinas (BSP), it said that it has been a pioneer in promoting financial literacy in the country when it established the BSP Consumer Education Committee.

This established a structured financial education program to empower Filipinos in making informed financial decisions.

Efforts include BSP e-Learning Academy, collaborative programs, innovative programs for marginalized sectors, training and capacity building, financial learning sessions, digital platforms, and educated materials.

For RCBC鈥檚 Mr. Ong, banks can play a crucial role in enhancing consumers鈥� financial literacy and health through various strategies such as educational resources, user-friendly tools and apps, transparent information and promoting savings.

鈥淧rivate financial institutions as well as BSP roll out programs to help grow financial learning and literacy to equip households and firms with the understanding and knowhow to navigate the challenging economic landscape with the help of financial market tools,鈥� Mr. Mapa said.

For Mr. Asuncion, banks in the country and the BSP are investing heavily in financial literacy to help consumers make informed decisions amid inflation and uncertainty.

Initiatives [may] aim to build resilience, promote responsible borrowing, and empower Filipinos to navigate inflationary pressures and economic uncertainty, said Mr. Asuncion.

The central bank strongly urges banks to go beyond providing basic access to financial services and improve in strengthening their clients鈥� financial health.

鈥淏anks are well-positioned to champion financial literacy because of their direct interaction with consumers and their central role in financial transactions,鈥� the BSP said in an e-mail.

It added that by embedding financial literacy into their products, promoting responsible lending, scaling education through partnerships, and tracking client outcomes, banks can help convert financial inclusion into financial resilience and well-being.

Banks, businesses, and the government should work to shore up confidence in the overall economy, Mr. De Jesus said.

鈥淸This can be done] by loosening credit, such as through interest rate reductions initiated by the BSP, making it easier for borrowing and lending, encouraging business investments that boost the business climate, and ensuring that the ventures we fund will have maximum impact on employment and incomes.鈥�

WHAT STARTED as a free-for-all for online gambling is about to get some serious house rules from the central bank.

Last July, the Bangko Sentral ng Pilipinas (BSP) released a draft circular introducing comprehensive regulations for online gambling payment services.

The draft circular represents the regulator鈥檚 assertive stance on online gambling. Should it become regulation, providers, operators, and consumers alike will be met with drastic changes in the gambling industry.

Then, in August, the central bank ordered to remove in-app gambling links from e-wallets.

鈥淭he BSP directive is issued in light of the surge in online gambling transactions and its impact on the financial health of consumers and their families,鈥� the central bank said in a statement.

AN URGENT RESPONSE
The central bank鈥檚 intervention followed growing alarm from lawmakers and health experts over online betting鈥檚 devastating impact. The Aug. 14 order gave financial firms 48 hours to remove links redirecting users to gambling websites.

鈥淭he Monetary Board has approved our policy ordering BSP-supervised institutions to take down all icons and links redirecting to online gambling sites,鈥� BSP Deputy Governor Mamerto E. Tangonan said during a Senate committee hearing on online gambling in August.

The new draft circular goes further, aiming to build comprehensive regulatory walls rather than simply patching leaks. BSP said the suspension would remain in place until guidelines for online gambling payment services are finalized.

鈥淚t is finalizing new rules, developed following public consultation, that will require banks, e-wallets, and other financial service providers to adopt stronger safeguards against gambling-related harm,鈥� the central bank said in a statement dated Aug. 7.

The scale of the challenge is substantial. According to Philippine Amusement and Gaming Corp. (PAGCOR), gaming industry gross gaming revenues jumped 26% to P214.75 billion in the first half of 2025. Electronic games drove this growth with a 53.47% increase in gross revenues to P114.83 billion.

PAGCOR currently collects a 30% rate from e-gaming platforms, down from 35%, which could encourage illegal operators to register. However, concerns remain about the proliferation of unlicensed and unregulated sites that could undermine anti-money laundering efforts.

BSP Governor Eli M. Remolona, Jr. said that more measures to regulate e-gaming are being considered.

鈥淲e鈥檙e still studying it. Basically, as before, we just want to put sand in the wheels,鈥� he said during the Manila Tech Summit on Aug. 26.

The regulatory pressures are heard not just in the government but also in the streets, among online gambling users who have already felt the first blows.

鈥淚f you鈥檙e a gambler, you鈥檙e really a gambler. You鈥檒l find and find other sites,鈥� said a bike taxi driver, who plays scatter slots on his mobile phone. He requested to be anonymous.

鈥淎ll the riders we鈥檝e been with, they all want to gamble,鈥� he said in an interview in mixed English and Filipino.

鈥淵ou say all sites disappear, everything, whether illegal, legal, whatever, nothing left, totally banned. Damn, then gambling in street corners will be rampant again.鈥�

DEFINING THE BATTLEGROUND
At its core, the proposed regulations seek to erect an accountability system for all participants in the industry.

The circular places further enforcement on Payment Service Providers (PSPs) 鈥� e-wallets, banks, and other financial institutions facilitating these transactions. Under the proposal, these entities must secure prior BSP authority to offer online gambling payment services.

This privilege depends on meeting strict criteria, including minimum capitalization of P300 million.

PSPs must also maintain 鈥渟trong anti-money laundering and counter-terrorism financing risk management鈥� systems. This function ensures only financially sound and compliant institutions operate in high-risk platforms.

Central to the BSP鈥檚 strategy is creating the Online Gambling Transaction Account (OGTA). This account must be created specifically for online gambling, funded exclusively through on-us transfers from the eligible account owner.

By mandating separate OGTAs, the BSP aims to force deliberate decision-making while creating auditable fund trails.

To enforce this, PSPs will implement enhanced know-your-customer measures, including mandatory facial biometric verification for account opening.

The circular will amend specific sections of the Manual of Regulations for Payment Systems to establish these new compliance requirements. PSPs must also conduct periodic reverifications to maintain account integrity and prevent unauthorized access by restricted individuals.

OPERATIONAL LIMITS
The circular imposes strict OGTA operational limitations, establishing daily funding limits not exceeding 20% of primary account average daily balance.

It mandates 鈥渢ransaction windows鈥� not exceeding six hours per day and 24-hour 鈥渃ooling-off periods鈥� following 鈥渉eavy usage.鈥�

Heavy usage, among other considerations, is to be defined by PSPs through their company-specific Responsible Online Gambling Policy. These policies should be intended to promote responsible gambling and enable account owners to exercise self-control and prevent gambling addiction.

Once OGTAs are created, all lending options within the same digital platform must be disabled. This measure could sever dangerous links between gambling and reckless spending.

In the draft circular, Online Gambling Operators (OGOs) face strict onboarding requirements through PSPs, which must treat them as 鈥渉igh-risk merchants.鈥� This entails enhanced due diligence, including beneficial ownership verification to identify ultimate natural persons behind corporate structures.

PSPs must verify if OGOs are properly licensed by appropriate government agencies like PAGCOR and maintain good standing.

INDUSTRY PREPARATIONS
The financial technology (fintech) sector is implementing comprehensive systems while bracing for challenges.

Fintech Alliance.PH Chairman Angelito 鈥淟ito鈥� M. Villanueva said that members have declared 鈥渮ero tolerance policy on misuse of digital payment platforms by illegal businesses, especially online gambling.鈥�

鈥淥ur members are already putting in place robust due diligence measures and real-time monitoring systems,鈥� Mr. Villanueva, who also sits as Rizal Commercial Banking Corp. executive vice-president and chief innovation and inclusion officer, said in an e-mail.

鈥淭his means stricter onboarding for licensed gaming merchants, blacklisting of unregulated sites, and detection tools to flag suspicious activity.鈥�

The Alliance supports proactive, risk-based approaches beyond simply blocking transactions. 鈥淲e are recommending tools such as transaction caps, time-based restrictions, and self-exclusion features built directly into user interfaces,鈥� Mr. Villanueva said.

Financial institutions are developing internal safeguards to prevent staff from participating in online gambling.

鈥淢any of our members have introduced internal awareness campaigns, stricter HR compliance protocols, and even employee self-exclusion policies,鈥� Mr. Villanueva added.

鈥淚f we, the fintech industry players, are safeguarded against gambling risks, then so are the consumers we serve.鈥�

Mr. Villanueva further said that a delicate balance between compliance and user experience has to be made.

鈥淲e need proper safeguards without creating unnecessary friction for legitimate digital transactions.鈥�

There are legitimate concerns about implementation costs, though Mr. Villanueva said the Alliance鈥檚 position is clear.

鈥淐onsumer protection and financial integrity are investments, not expenses,鈥� he said.

Major players have signaled alignment with regulators. In separate statements, GCash and Maya said they will comply with the BSP鈥檚 directive immediately. Both e-wallets subsequently dropped links to gambling sites on their platforms.

According to the results of a survey conducted by research firm The Fourth Wall, GCash emerged as the most-used e-wallet app, cited by 92% of respondents, followed by Maya (6%).

鈥淲hen BSP ordered removal of in-app gambling links, Maya acted swiftly and complied within the mandated period,鈥� Maya said in an e-mail statement to 大象传媒.

鈥淢aya fully supports the BSP鈥檚 efforts to ensure the responsible use of digital financial services, safeguard system security, strengthen consumer protection, and promote financial inclusion.鈥�

Despite industry cooperation, debates emerge about whether regulation is enough.

鈥淲e need to go beyond taking down icons and links,鈥� said Mr. Villanueva.

The Alliance plans comprehensive guidance for dispute resolution.

鈥淚 would like to create and execute an encompassing 鈥榖ible book鈥� that will compile these concerns, protocols, and best practices,鈥� Mr. Villanueva said.

THE HUMAN COST
The BSP鈥檚 urgency for regulation is underscored by alarming rates of addiction.

Jayvee Vargas, representative for rehabilitation center Bridges of Hope, revealed during a video interview that 鈥渟even out of 10 people admitted to our facilities have gambling disorders.鈥�

Bridges of Hope Drugs and Alcohol Rehabilitation Foundation, Inc. is a PAGCOR-accredited help center with 15 branches nationwide.

鈥淚鈥檝e seen in the last five years, I鈥檝e seen it almost double,鈥� Mr. Vargas said, describing the trend as 鈥渟cary.鈥�

COVID-19 served as a key point when the lockdown drove people to online gambling. However, Mr. Vargas said accessibility is the fundamental issue. 鈥淔or me, that鈥檚 the first problem. It鈥檚 very accessible to the public,鈥� he said.

The barriers to entry are minimal. 鈥淎ll you need is capital of P100, and then you can have access to it already,鈥� he said. 鈥淵ou can bet in cents.鈥�

Gambling addiction affects all social strata without discrimination. 鈥淪ome come from wealthy families. Some come from the lower bracket. It affects everybody.鈥�

Current age verification systems remain fundamentally flawed. 鈥淭here鈥檚 no way to validate the age. You just have to tick, like, a box [saying] 鈥極kay, I鈥檓 21 years old,鈥欌�� Mr. Vargas said. 鈥淏ut there鈥檚 no measure that says, 鈥楴ow, show me proof that you鈥檙e 21.鈥欌��

The addiction cycle follows predictable patterns. 鈥淲hen you have that habit of gambling, you鈥檙e always thinking about the wins and not anymore the losses.鈥�

Similarly, the bike taxi driver said that gambling is 鈥渓ike drugs.鈥�

鈥淚f you don鈥檛 know how to control yourself, you鈥檒l really be addicted to it. That鈥檚 why you see, they removed it from GCash… But, we can still gamble.鈥�

The driver added that illegal gambling sites do not impose cash-in limits.

鈥淏ecause with sites, you really can鈥檛 stop the sites. They get a lot from that.鈥�

PROHIBITION VS REGULATION
Mr. Vargas views daily caps and time limits as improvements. 鈥淚 think that鈥檚 better than none,鈥� he said regarding proposed time limits.

However, he said that determined addicts may explore jailbreaks. 鈥淭he only cap is the limit of how deep their wallet goes,鈥� Mr. Vargas said, regarding self-imposed caps. 鈥淚f there are limits, daily limits, I鈥檒l just max out the daily limits if I鈥檓 really addicted.鈥�

Cooling-off provisions and pop-up risk messaging may provide some benefit. 鈥淚 think it will have some effect,鈥� Mr. Vargas said, drawing parallels to anti-drunk driving campaigns that have reduced road accidents.

The exclusion of vulnerable groups receives strong support. 鈥淚 think it鈥檚 good to protect that, especially minors and senior citizens,鈥� Mr. Vargas said. For elderly gamblers, 鈥渢hey鈥檙e supposed to be relaxing, enjoying life, right?鈥�

The debate ultimately centers on whether regulation suffices or outright prohibition becomes necessary. Mr. Vargas maintains conditional support for regulated access.

鈥淚f gambling operators and regulators have robust safety measures for the gaming public, then I don鈥檛 believe we need to remove access,鈥� he said.

鈥淏ut if there鈥檚 no robust measure. We鈥檙e kind of playing with fire,鈥� he added.

Mr. Villanueva advocates stronger measures given escalating social costs. 鈥淭he social costs outweigh the financial benefits,鈥� he said.

鈥淎 clear and decisive stance will help protect Filipinos from gambling addiction dangers becoming too easy through digital channels.鈥�

A critical risk involves potential migration to illegal platforms. 鈥淭here could be spillover to the illegal gambling sites,鈥� Mr. Vargas said. 鈥淭hat鈥檚 what we have to watch out for 鈥� how to stop those sites from existing.鈥�

The driver said that industry giants like GCash should be allowed to provide services on online gambling sites.

鈥淲hat they should do better there: just bring it back to GCash. Because that鈥檚 where they鈥檒l earn.鈥�

The driver added that gambling is a universal reality that should be regulated instead. 鈥淎lmost all people in the world gamble. There鈥檚 no person who doesn鈥檛 gamble. Even those who go to church, they gamble.鈥�

鈥淪o, even if you鈥檙e good, if you hold cards, you鈥檙e still a gambler.鈥�

However, Mr. Villanueva said that regardless of their legality, online gambling sites 鈥渟till allow users to connect their e-wallets and even bank accounts directly.鈥�

鈥淭hese wallets should be delinked completely from gambling transactions, period.鈥�

PUBLIC CLAMOR erupted on July 1 after the government announced the implementation of the Republic Act No. 12214 or the Capital Markets Efficiency Promotion Act (CMEPA) countrywide.

Filipinos complained of a seemingly new tax, entailed by the law, targeting their passively held savings in banks. This emerged as the law鈥檚 primary point of impression on the people which led to widespread verbal dismissals of its entirety.

But there are no new taxes.

Instead, CMEPA introduces a simpler, fairer, and more efficient income tax system to encourage saving and to boost capital markets in the Philippines.

The law aims to boost capital markets, increase market participation, improve liquidity, and lower transaction costs. However, such objectives have been greatly overshadowed by the law鈥檚 final withholding tax (FWT) component, leading it to be tagged as another money-making scheme that only favors greedy lawmakers.

Regardless of the backlash it received, the CMEPA has already changed the game in the Philippine banking landscape 鈥� a reality that investors and depositors will inevitably face.

VAGUE DIRECTIONS
Michael Gerard D. Enriquez, president of Sun Life Investment Management and Trust Corp., said that the immediate negative feedback came from a lapse in communication to the public.

鈥淚t was misconstrued that it would withhold taxes on deposits or investments as a whole,鈥� he told 大象传媒 during a Zoom interview, saying that a lot got surprised in hearing this.

BDO Capital and Investment Corp. President Eduardo V. Francisco said in an e-mail that the public thought a new 20% tax on investments and deposits will be added, which 鈥渉as already been in place for a long time.鈥�

鈥淭hey should make it clearer next time for communication that [the tax] is only on the interest,鈥� Mr. Enriquez added.

Taxes on interest earnings of deposits and other interest-bearing accounts have been in effect in cascading tiers according to time kept before CMEPA came in.

Interest on money kept for less than three years had been taxed at 20%, between three and four years at 12%, and between four and five years at 5%. The Bangko Sentral ng Pilipinas (BSP)-certified deposits kept beyond the five-year mark were free of taxes.

The CMEPA equalized the rate for all time lengths at 20% for all deposits made after July 1 for both peso- and dollar-dominated accounts.

Mr. Francisco said that the law just 鈥渓evels the playing field鈥� through this adjustment.

IS THE GRASS GREENER?
As it has taken effect, Mr. Enriquez said that the CMEPA generates 鈥渁 more equal opportunity for everyone,鈥� pertaining to big and small investors alike.

鈥淸It] addresses not just taxation on investments [but also] the taxes on transactions, especially on equity trading,鈥� he added.

Through the act, the stock transaction tax (STT) has been lowered to 0.1% from 0.6%, implying a smaller cut in trading shares of a domestic corporation through local and foreign stock exchanges.

Additionally, documentary stamp taxes (DST) on the original issuances of shares have been reduced to 0.75% from 1% and completely lifted from initial transactions on mutual and investment trust funds.

CMEPA also imposes a blanket 0.75% DST on bonds, debentures, and certificates of stock and indebtedness issued in a foreign country.

Mr. Francisco said that the law makes it easier for Filipinos to try their hand at investing through such reduced transaction costs and more consistent tax schemes across diverse types of investments.

Sales or transfers of shares listed on either local or foreign stock exchanges are consistently subject to a 0.1% STT, rather than being taxed under the capital gains tax (CGT) system.

Mr. Enriquez said that this change 鈥渉as greatly brought us closer to the global industry.鈥�

CGTs, which are imposed on profits of unlisted domestic and foreign shares have been equalized to a 15% rate through the law.

Prior to CMEPA, only sales of domestic shares received the 15% tax, while those of unlisted foreign shares were subject to an income tax of 25% for corporations and a progressive tax of up to 35% for individuals.

Mr. Enriquez also noted the benefits CMEPA provides to holders of Personal Equity Retirement Accounts (PERA).

The provision is an additional 50% tax reduction on employers that contribute equal or greater amounts to their PERA beneficiary employees.

PERA is a voluntary retirement saving program that encourages Filipinos to increase their financial security by investing in viable products.

Mutual funds, stocks, securities, and the like 鈥� which are nonspeculative, marketable, and provide regular income payments to investors 鈥� fall under such products.

Funds placed in the program may be withdrawn as the investor turns 55 years old and has made qualified contributions for at least five years.

THE BIGGEST ROADBLOCK
In reaping the law鈥檚 benefits and reaching its objectives, both analysts mentioned that the lack of financial literacy among Filipinos must be addressed first.

鈥淲hile CMEPA is good, we have a lot of work to do in educating the Filipinos on savings and investments,鈥� Mr. Francisco said.

鈥淔inancial literacy is still a big problem in the Philippines鈥� we need to bombard [Filipinos] on the importance of this,鈥� Mr. Enriquez added.

Financial literacy is defined by the BSP as the ability to make informed financial decisions and to maximize the potential benefits of financial resources.

The BSP鈥檚 latest financial inclusion survey (FIS) of 1,200 Filipinos in 2021 showed that only 2% of respondents correctly answered all six questions on basic financial literacy.

Financial concepts including division, risk-return trade-off, diversification, inflation, and simple compound interest rates were covered by the questions.

Results showed that 58% of all respondents were aware of portfolio diversification while only 32% knew how to calculate simple interest earned in saving accounts.

In addition, only 7% of respondents said they have attended seminars on financial literacy, while 54% expressed interest in doing so.

TREADING THE WRONG VENTURES
Mr. Enriquez said that Filipinos are more likely to look into get-rich-quick schemes rather than the discipline of managing their finances diligently.

鈥淭hey are more susceptible to scams and online gambling,鈥� he added.

TransUnion鈥檚 State of Omnichannel Fraud update for the first half of 2025 showed that phishing was the most prevalent scamming scheme in the Philippines.

Phishing involves the scammers鈥� impersonation of reputable companies to bait victims鈥� in providing sensitive information such as credit card details and bank account numbers.

More than three-fifths (63%) of surveyed Filipino consumers reported being targeted by scams and more than 10% ended up falling victim.

The study also reported that Filipino victims lost an average of $768 or more than P44,700 during the period.

On the other hand, Mr. Francisco said that Filipinos have also been 鈥渕ore conservative with their investments and expansions.鈥�

The latest FIS reflected this downtick, showing that only 37% of adults surveyed had savings in banks from the 53% seen in the previous edition.

Likewise, adults with insurance slipped to 17% from the 23% seen previously.

鈥淲e are still educating them to save, so the next stage is to teach them to how and where to invest鈥� we have to [show] them more options,鈥� Mr. Francisco said.

Mr. Enriquez said that financial discipline must be prioritized regardless of financial status and that low earnings should not hinder Filipinos from expanding their financial portfolio.

He added that the highest consideration must be 鈥渉ow much you save rather than how much you make.鈥�

JITTERS ALONG THE WAY
Both analysts also identified wobbly areas in the Philippine investment atmosphere which the act could have addressed further.

Mr. Enriquez said that the country still can catch up on global practices in government securities even with the law鈥檚 current provisions.

Individual Filipino investors face a 20% FWT on deals concerning government securities.

Among members of the Association of Southeast Asian Nations, only Thailand and Indonesia also impose FWTs on government securities, at 10% and 15%, respectively.

Additionally, Mr. Enriquez noted that a drawback in CMEPA is the increased tax on foreign currency bonds.

The interest income tax on foreign currency-denominated accounts climbed to 20% from the 15% imposed beforehand.

For the parties concerned to deal with this, Mr. Enriquez suggested that investors may opt for alternative investment instruments offshore where interest rates would be more attractive for them.

Meanwhile, Mr. Francisco said that there is still 鈥渁 lot to be done鈥� in reducing other fees such as those seen in the Philippine Stock Exchange listing, the Securities and Exchange Commission processing, custodial fees, and the like.

鈥淔iling rules and documentations can be simplified, especially for small to medium enterprises, to encourage more listings,鈥� he added

He also noted the persisting weakness of the stock market after CMEPA took effect, despite one of the law鈥檚 objectives being to boost the local bourse.

鈥淢ost investments are going towards bank deposits and fixed income investments,鈥� he added.

THE PATH AHEAD
Mr. Francisco said that attracting foreign investors will be key to maximizing the effectiveness of CMEPA in improving capital markets.

鈥淭here are macro issues to solve [in light of] CMEPA, we still have to [garner] more foreign direct investments as a lot of foreigners have shunned or left the Philippine stock market,鈥� he said.

The latest BSP data on foreign direct investments show that cumulative investments up to June were down year on year by 23.8% to $3.42 billion from $4.49 billion.

The drop was attributed to monthly levels of nonresident鈥檚 net investment in equity capital with $57 million in outflows from the $85 million inflows a year earlier.

He added that talks to improve PERA and Real Estate Investment Trust laws should also be done to boost CMEPA investments moving forward.

On the other hand, Mr. Enriquez said that an awareness campaign is essential for the success of the law and its provisions.

鈥淭he tools, like PERA [and CMEPA] are there, but nobody is using them鈥� there should be an aggressive awareness campaign on their benefits,鈥� he said.

He added that the campaign should focus on the 鈥済rassroots level鈥� 鈥� the employees, which the law aims to help in fund management.

Mr. Enriquez said Filipinos should learn and try investing to know how much the CMEPA offers and enables them.

鈥淭he main argument is that 鈥業 am not earning enough鈥� [鈥 but a lot of programs have democratized investing,鈥� he added.

Widely used mobile wallets such as GCash and Maya offer investment opportunities in mutual funds and unit investment trust funds through various fund providers.

鈥淸Filipinos] should have a legitimate way to grow their money; you don鈥檛 have to start big, you just have to start somewhere,鈥� Mr. Enriquez said.

These factors are expected to continue impacting the country鈥檚 financial market for the rest of the year, the central bank said.

At the end of the second quarter, the benchmark barometer Philippine Stock Exchange Index (PSEi) closed at 6,364.94, down 0.7% from a year earlier.

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Meanwhile, data from the Bankers Association of the Philippines showed that the peso closed at P56.33 as of end-June, stronger than the P58.61 finish a year ago.

At the secondary bond market, domestic yields dropped by an average of 6.22 basis points (bps) year on year, based on PHP Bloomberg Valuation (BVAL) Service Reference Rates published on the Philippine Dealing System鈥檚 website as of end-June.

TRADE UNCERTAINTY
Analysts said that the US trade policies was one of the main drivers of the domestic market movements during the second quarter.

鈥淯S President Donald J. Trump鈥檚 sweeping tariffs and rapidly shifting policies triggered a wave of uncertainty across the global economy, (which) led the US Federal Reserve to hold off on interest rate cuts, and weighed on investor sentiment,鈥� Chinabank Research said in an e-mail.

It added that with Mr. Trump promising more tariffs, changes to US trade policy will likely remain a significant market mover for the year.

This escalation of US tariffs created volatility in global markets, said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., in an e-mail.

He added that uncertainty over future trade measures contributed to a cautious sentiment from investors and global supply chains.

Last Aug. 7, Mr. Trump implemented a 19% tariff on Philippine goods. This was lower than the 20% the US had threatened to carry out, but still higher than the 17% levy initially announced last April.

On the other hand, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said that while tariffs had fueled much of the market volatility since early April, this would likely be less of a concern moving forward.

鈥淣ow that the US has arrived at a somewhat settled tax rate vis-脿-vis most countries, who, for the most part, are accepting this new status quo,鈥� he said in an e-mail.

He added that the 19% levy isn鈥檛 a 鈥渉uge hit鈥� as it doesn鈥檛 put the country at a disadvantage among its competitors in the region.

For the central bank, this 19% levy slapped on Philippine goods had broadly similar rates with some neighboring economies and lower than others.

鈥淲hile the US tariffs may have downside impact on our economy, this could be less than the impact on our neighbors given that the Philippines relies less on exports,鈥� the BSP said in an e-mail.

The country鈥檚 new US tariff rate aligns with those of Indonesia, Cambodia, Malaysia and Thailand but is slightly lower than Vietnam鈥檚 20%.

FED UNCERTAINTIES
Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., said that speculations on US monetary policy decisions drove financial markets in the quarter.

鈥淸US] inflation risks and economic performance have spillover impacts on all markets especially for emerging markets like the Philippines,鈥� Mr. Erece said in an e-mail.

Aside from the ongoing tariff negotiations, developments related to the resumption of the US Fed rate cut cycle have been a major market movement, said Nicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co.

鈥淒omestically, developments related to the BSP鈥檚 own rate cut cycle and growth report also contributed to the movement of Philippine markets,鈥� he said in an e-mail.

The US central bank鈥檚 benchmark rates held steady for the second quarter with a 4.25% to 4.5% but is signaling for two rate cuts by the end of 2025.

Analysts pointed out that Fed cuts could favor the emerging markets including the Philippines.

For Marites M. Tiongco, professor and dean of the School of Economics at the De La Salle University, every time the Fed would hint at rate cuts, global investors were more inclined to take risks, since a weaker dollar could be an advantage for Philippine markets.

Similarly, Mr. Asuncion said that the Federal Reserve may maintain a cautious stance with rate cuts in late 2025 to early 2026.

鈥淎 weaker US dollar trend could favor emerging market assets, including the Philippines,鈥� he added.

The BSP said that the peso appreciated against the dollar in the second quarter as the dollar weakened due to trade uncertainty, soft US economic data, and dovish Fed signals.

The local unit is expected to remain stable despite BSP rate cuts, supported by growth, manageable inflation outlook, reforms, and steady foreign exchange inflows from BPOs, tourism, and remittances, the central bank added.

MONETARY EASING CYCLE
In its June policy meeting, the central bank slashed policy rates by 25 basis points (bps), to 5.25%, the lowest level in two and a half years.

This came amid benign inflation and weaker-than-expected economic growth.

鈥淟ower interest rates may hopefully encourage more borrowing to be used for household spending or capital expenditures,鈥� said Mr. Erece.

In the second quarter, the Philippine economy expanded by an annual 5.5%, weaker than the 6.5% growth in the same period last year.听 Still, this was slightly faster than the 5.4% expansion in the January to March period.

The latest GDP figure hit the lower end of the government鈥檚 5.5% to 6.5% growth target this year.

Mr. Asuncion said that the recent BSP cuts since April supported 鈥渓iquidity, lowered borrowing costs, and boosted sentiment in equities and credit-driven sectors such as real estate and banking.鈥�

BSP Governor Eli M. Remolona, signaled the possibility of two more rate cuts this year, after the cut in June.

At its August policy meeting, the BSP slashed the target reverse repurchase rate by 25 bps to 5% from 5.25%, its lowest level in almost three years.

The central bank began its easing cycle in August last year, reducing borrowing costs by a total of 150 basis points (bps).

鈥淭he Bangko Sentral ng Pilipinas (BSP) is likely to continue cutting policy rates toward 4.75% by yearend,鈥� Mr. Asuncion added.

Meanwhile, Mr. Chanco expects that 鈥渢here could be more an upside surprise for markets here if the BSP goes for three [rate] cuts, which is within the realm of possibilities from our standpoint, given how elevated rates still are after adjusting for (very low) inflation.鈥�

For the central bank, the rate cut delivered in August was 鈥減robably the end of the easing cycle, unless new data will necessitate another cut for the year.鈥�

The latest rate cut, the BSP said, is expected to reduce borrowing costs and support domestic spending and investment, which in turn could support the local stock market.

For Ms. Tiongco, if inflation remains low, it could provide a 鈥済oldilocks鈥� environment for the Philippine market.

August inflation quickened to a five-month high of 1.5%, a tad faster than the 0.9% in July but still slower than the 3.3% recorded in the same month last year.

The latest inflation reading settled with the BSP鈥檚 1%-1.8% forecast for the month and marked the six straight month it fell below the central bank鈥檚 2-4% target range.

For the first eight months, headline inflation averaged 1.7%, matching the BSP鈥檚 1.7% target this year.

WHAT TO WATCH OUT FOR
The BSP noted that global factors such as trade, immigration, fiscal policies, and US monetary easing will shape market sentiment in the second half, while its own policy stance, alongside fiscal measures and structural reforms, will also play a crucial role.

For Chinabank Research, market participants should keep an eye on US tariff policy, rate cuts of both the Fed and BSP, and geopolitical risks.

鈥淎n escalation in geopolitical tensions could spur market volatility and disrupt supply chains, potentially affecting commodity prices,鈥� Chinabank Research added.

For Mr. Mapa, he said that tariffs and Fed policy 鈥渞emain the major and pivotal issues that should continue to drive market sentiment for the rest of 2025.鈥�

He said that the BSP outlook as well as Philippine economic growth would influence the market in the following months.

Meanwhile, Mr. Chanco said that Asia鈥檚 export growth is expected to slow sharply in the second half as earlier front-loaded shipments to the US begin to unwind.

He noted that market sentiment could swing either way. He said that market sentiment could improve if export growth slows only gradually, suggesting first-half gains were driven by real demand.

However, risks remain should the US impose sector-specific tariffs on semiconductors and pharmaceuticals.

For her part, Ms. Tiongco said the third quarter may be 鈥渃hoppy,鈥� with easing inflation and rate cuts balanced against US tariffs and geopolitical risks.

鈥淭he best trades are in domestic-facing sectors and medium-tenor bonds while the biggest risk is tariffs hitting electronics, which would dampen sentiment more than the actual economic hit,鈥� she added.

FIXED-INCOME MARKET
Chinabank Research: We expect market interest rates to move lower this [third quarter], with the yield curve steeper, driven by expectations of further easing from both the BSP and Fed.

Mr. Mapa: It will take its cue from supply conditions as well as projected inflation and BSP policy. We could see a fundamental based rally if inflation remains target consistent and BSP pulls through on easing.

Mr. Asuncion: Lower policy rates reduce borrowing costs and push yields down, making existing bonds more valuable. Analysts expect 10-year yields to fall toward 5.5% from 6.2%, creating capital gains opportunities for bondholders.

Mr. Erece: Strong demand for assets in emerging markets may continue to persist and thus increase demand for peso-denominated bonds.

Ms. Tiongco: Duration strategies favor the 鈥渂elly鈥� of the curve (3-7Y). If yields on the 10Y spike above 6.2% due to supply or tariff noise, it鈥檚 a buying opportunity.

EQUITY

Chinabank Securities Corp. Research Director Rastine Mackie D. Mercado: We generally expect the PSEi to traverse the range between 6,150 and 6,550 level for most of third quarter, pending a fresh catalyst.

Mr. Asuncion: The easing cycle signals a pro-growth stance, which could attract both domestic and foreign investors, especially as inflation risks remain muted and the peso stays relatively stable.

Mr. Erece: We may expect to see sideways movement in equity markets as investors remain cautious with developments in the global economy as well as policy changes within the domestic economy.

Ms. Tiongco: Likely to trade between 6,100-6,600 and could climb toward 6,700-6,800 if tariffs are softened/delayed and US cuts rates but could fall to around 5,900 if tariffs worsen or oil spikes.

FOREIGN EXCHANGE MARKET
Chinabank Research: Expectations for the Fed鈥檚 policy rate path would remain a key driver of the USD and PHP. A rate cut by the Fed in September and guidance for further easing could weaken the US dollar.

Mr. Mapa: A bond market rally could attract foreign flows especially if the Philippines does gain inclusion or is confirmed to be on the watchlist for inclusion in the JPMorgan bond index.

Mr. Asuncion: Peso strength reflected resilient remittances, a narrower trade gap, and BSP鈥檚 credibility, though volatility persisted due to global risk sentiment and tariff headlines.

Mr. Erece: We may expect the Fed to remain hawkish as inflation risks continue to loom amid the tariff impositions by the Trump administration.

Ms. Tiongco: USD/PHP stays in P56 to P58 range, but tariff-related outflows or an oil spike could push it toward P59.5. 鈥� LPQB

THE PHILIPPINE cryptocurrency industry that emerges this year may look vastly different from the one that entered the central bank鈥檚 moratorium.

Recall that last September 2022, the Bangko Sentral ng Pilipinas (BSP) halted registrations for new Virtual Asset Service Provider (VASP) licenses.

According to Section 902-N of the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI), virtual assets (VAs) may refer to any type of digital-unit that can be digitally traded, or transferred, and can be used for payment or investment purposes.

Cryptocurrencies are treated as VAs exchanged through a VASP. As of May 2025, 13 companies hold VASP licenses.

But on May 30, the Securities and Exchange Commission (SEC) finally released their Crypto-Asset Service Provider (CASP) Rules and Guidelines, which aims to provide further regulations on cryptocurrency service providers and crypto-adjacent firms.

Meanwhile, the BSP moratorium for VASP licenses is set to expire in 2025.

These twin developments signal a pivotal moment, reshaping how crypto businesses operate, how investors are protected, and how innovation navigates a more defined regulatory landscape.

SEC鈥橲 NEW RULES
Cryptocurrency continues to grow in the Philippines. In an interview with Bloomberg TV last January, Finance Secretary Ralph G. Recto said that P6 trillion worth of crypto investments is being done in the Philippines.

However, the SEC has made moves in the past to regulate cryptocurrency firms. Last year, the commission requested the National Telecommunications Commission as well as the app markets of Google and Apple to block access to crypto exchange Binance, as the exchange failed to secure a license to solicit funds from the public or operate exchanges for securities.

The SEC鈥檚 move into the crypto space is deliberate, aiming to address risks distinct from those overseen by the BSP.

鈥淚nvestment or securities-related crypto activities fall under the jurisdiction of the SEC,鈥� the SEC鈥檚 PhiliFintech Innovation Office stated in an e-mail message.

鈥淭he proposed SEC Rules for CASPs, when compared to BSP鈥檚 existing VASP regulations, have different objectives in terms of addressing risks in the crypto market in the Philippines.鈥�

Republic Act No. 11765 or the Financial Products and Services Consumer Protection Act empowers the Commission to oversee financial products other than traditional securities.

鈥淯nder this law, crypto-assets that take the form of investments fall within the jurisdiction of the SEC,鈥� it added.

Under the new SEC rules, a 鈥渃rypto-asset鈥� is defined as 鈥渁 cryptographically secured digital representation of value or of a right that relies on a cryptographically secured distributed ledger or a similar technology.鈥�

Likewise, a CASP is defined as an entity that, as a business, offers or engages in the provision of one or more crypto-asset services.

These services include offering crypto-assets to the public or operating a crypto-asset trading venue.

The rules state that 鈥渃rypto-assets shall not be sold, offered for sale, or distributed in the Philippines without complying with the provisions of these Rules and the CASP Guidelines.鈥�

Under these rules, crypto-assets generally cannot be offered or sold in the Philippines without filing a disclosure document with the SEC and publishing it at least thirty days before any marketing or offering.

If a crypto-asset qualifies as a security, it requires a registration statement approved by the SEC.

鈥淥nce a crypto-asset takes the form of an investment or security, an obligation arises on the part of CASPs to comply with the standards set, such as those on public offerings, disclosures, registration, marketing, and intermediation activities,鈥� the SEC office said.

Meanwhile, the CASP guidelines show that a CASP applicant must be a corporation registered with the SEC, indicate the operation of a CASP in its primary purpose, and have a minimum paid-up capital of at least P100 million in cash or property, excluding crypto-assets.

Applicants must also have a physical office located in the Philippines, which must be appropriately staffed or manned during regular business hours.

鈥淥nce the final and approved CASP Rules and Guidelines are published, all existing natural or juridical persons that fall within the scope of these regulations 鈥� including BSP-licensed VASPs 鈥� will have thirty (30) days from the date of publication in two (2) newspapers of general circulation to begin complying with the new requirements,鈥� the SEC office added.

BSP鈥橲 EVOLVING STANCE
BSP, which has been the primary regulator for entities dealing with VAs as payment instruments, maintains its focus on financial stability and consumer protection.

鈥淭he moratorium for new VASP applications is currently under review,鈥� the central bank said in a separate e-mail interview.

鈥淜ey considerations include the developments in the local and global VASP landscape and the results of supervisory activities, among others.鈥�

The BSP has sustained its regulation of VASPs during the moratorium. Last year, it revoked the license of VASP and remittance company Atomtrans Tech Corp. In 2023, it canceled the certificates of registration of Coinville Phils., Inc. and Bexpress, Inc.

When evaluating new applicants post-moratorium, the BSP said it would prioritize corporate governance structure and the applicant鈥檚 capacity to manage risks in anti-money laundering, IT cybersecurity, and consumer protection.

It will also evaluate applicants鈥� business models to determine whether they support the BSP鈥檚 digitalization and financial inclusion agenda.

Furthermore, the central bank said that it is planning to adjust minimum capital requirements in its rules, to ensure VASPs can continue to provide services amid tumultuous market conditions. The proposed new capital requirements stem from evaluations during regular VASP examinations and are currently awaiting industry feedback.

The MORNBFI currently sets minimum capital requirements for VASPs at P10 million for those without safekeeping and/or administration services for VAs, and P50 million for VASPs with such services (i.e., VA custodians).

Post-moratorium, the BSP is also working to enhance control measures over corporate governance particularly concerning Related Party Transactions (RPTs), improve liquidity management to ensure continuous service, and reinforce requirements for the proper recording and segregation of customer VAs from proprietary VAs.

The central bank will approach the moratorium considering recent incidents like the Bybit crypto exchange breach, crypto exchange and hedge fund FTX鈥檚 corporate governance collapse, widespread scams and rugpulls in the crypto industry, and market volatility.

鈥淭he moratorium has enabled the BSP to lay the groundwork for a more bespoke regulatory environment for VASP,鈥� the BSP said.

NAVIGATING DUAL FRAMEWORKS
The introduction of the SEC鈥檚 CASP framework alongside the BSP鈥檚 existing VASP regulations necessitates clear coordination to prevent undue burden on industry players.

鈥淭he BSP and SEC have existing coordination mechanisms, such as the Financial Sector Forum,鈥� the BSP said.

It added that both regulators are 鈥渃losely working on the review of existing rules and regulations on VASPs, focusing on key aspects such as scope of regulatory and supervisory powers, information sharing, alignment of reporting requirements, and consultation about emerging products and services.鈥�

The SEC echoed this, noting that its primary strategy for existing BSP-licensed VASPs revolves around 鈥渃lose collaboration and formal agreements with the BSP,鈥� as the commission continues to work on a Memorandum of Agreement (MoA) with the central bank.

This MoA specifically addresses jurisdictional overlaps to ensure a smooth transition to a well-regulated financial market for investors in cryptocurrency.

INNOVATION MEETS REGULATION
Wei Zhou, chief executive officer (CEO) of Coins.ph, expressed a desire for a regulatory framework that enables local players to compete fairly with offshore exchanges that aggressively market a wider range of products, such as derivatives and margin trading, to Filipinos.

Coins.ph is a VASP duly registered with the BSP as a remittance and transfer company, serving over 16 million users.

Mr. Zhou said that his company built its business in accordance with the existing BSP VASP regulations. He anticipated that the Philippines might align its rules with developments in the US regulation for cryptocurrencies and suggested a cautious approach to avoid frequent operational changes.

鈥淲hat I would love to have is a regulatory framework that allows us to provide these products and services so that at least day-to-day normal Filipinos have financial access, have financial empowerment,鈥� he said in a Google Meet interview.

Mr. Zhou also pointed to the potential for crypto technology beyond common trading, envisioning their exchange as a platform for tokenized real-world assets, including local agricultural commodities like cacao or coffee beans, if the regulatory framework would permit.

鈥淒on鈥檛 try to regulate for the past. Try to build, you know, rules for the future, right?鈥� Mr. Zhou said.

Jiro Reyes, CEO of Bitskwela, a crypto education platform, said that the proposed CASP regulations as a 鈥渟tep in the right direction,鈥� covering necessary bases from investor protection to operational standards.

However, Mr. Reyes advocated for a tiered licensing system under the SEC鈥檚 CASP framework.

He said that the P100 million paid-up capital requirement, while sensible for large exchanges, could 鈥渦nintentionally shut out smaller builders, communities, and education-focused organizations who still want to operate responsibly in the space.鈥�

鈥淚 personally know a lot of passionate and credible teams in the local Web3 scene who are building real value, but don鈥檛 have that kind of capital yet. A more flexible, tiered system 鈥� maybe based on risk level or business type would give them a pathway to legitimacy without being held to the same standards as major financial intermediaries,鈥� Mr. Reyes said.

Both Mr. Reyes and Mr. Zhou highlighted the need for greater clarity and a supportive environment for innovation.

鈥淗armonization is long overdue 鈥� and honestly, it鈥檚 one of the biggest unlocks we need for Web3 to thrive in the Philippines,鈥� said Mr. Reyes on the coordination between the BSP and SEC.

鈥淲hat you don鈥檛 want is like you want to do something and then everybody else but the Philippines is doing it. And then there鈥檚 no guidance on how to do it here in the Philippines. I think that鈥檚 what we don鈥檛 want to happen,鈥� said Mr. Zhou.

As the Philippines continues refining its efforts in allowing its local crypto industry to develop, the interplay between these regulatory efforts and the industry鈥檚 bleeding edge in financial technology can only give way to further developments.

EMBRACING digital banking was a leap the Bangko Sentral ng Pilipinas (BSP) took since it began opening its doors to the idea of fully digital banks to operate in the country alongside traditional banks.

In December 2020, the BSP released guidelines on the establishment of digital banking licenses and by 2021, it approved six digital banks: Overseas Filipino Bank, Tonik Digital Bank, Inc., UNO Digital Bank, GoTyme Bank,听 Maya Bank, Inc., and UnionDigital Bank, Inc.

Shortly after, it then imposed a three-year pause in granting licenses for the central bank to monitor the banks鈥� performances.

The central bank believes that these banks are key drivers for financial inclusion and will contribute innovative financial solution.

Fast forward, these frontrunners will now face competition as the BSP allow four more banks to operate, meaning, a total of 10 banks will hold digital licenses, wherein the four will probably be fully operational by next year.

Issued on Dec. 26 last year, the BSP Circular No. 1205 approved the issuance of digital banking licenses, including the conversion of existing bank鈥檚 license to digital bank license beginning Jan. 1, but still subject to prudential limits and conditions.

鈥淭his move further advances BSP鈥檚 agenda on greater financial inclusion and digital transformation by encouraging the entry of new players with robust, distinctive customer value propositions and innovative business models,鈥� the BSP said in an e-mail.

This proves the central bank鈥檚 significant efforts and initiatives to support the growth of digital banking.

Additionally, it shows that digital banks are positioned for growth and reshape the financial landscape in the country, however, it would raise a concern on how these banks will leverage its potential while managing risks and establishing fair competition in the banking industry.

DIGITAL BANKS vs. TRADITIONAL BANKS
George N. Manzano, an economist from the University of Asia and the Pacific, said that digital banks are not necessarily threats but rather should be seen as complementary players that can better serve specific market segments, which includes the unbanked, tech-savvy clients, or small digital entrepreneurs.

鈥淭o stay relevant and competitive, traditional banks may find it strategic to establish digital bank subsidiaries. This allows them to test new models, reach underserved markets, and offer a full suite of services that cater to both traditional and digital-first customers,鈥� Mr. Manzano said in an e-mail.

He added that instead of viewing digital banking as a zero-sum game, the future may lie in finding synergies and complementarities between the two approaches.

For Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., while digital banks emerge, this doesn鈥檛 mean that it will replace traditional banking institutions and practices in the short term.

He added that there are still a lot who are concerned with security and still prefer face-to-face transactions for availing their banking needs plus poor digital infrastructure is also a reason why consumers will favor traditional banks.

For UnionDigital Bank, the rise of digital banks is not a disruption to traditional financial institutions, but as a complementary force that expands the reach and depth of financial services across the country.

鈥淲e believe that the BSP鈥檚 initiative to issue digital banking licenses is a bold and necessary step to bridge the gap in financial access. It鈥檚 not about replacing traditional banks 鈥� it鈥檚 about working alongside them to build a more inclusive, resilient, and future-ready financial ecosystem for every Filipino,鈥� it said in an e-mail.

For Greg Krasnov, founder and chief executive officer of Tonik Digital Bank, digital banks are fundamentally shifting how banking services are accessed, delivered, and scaled.

鈥淭raditional institutions have historically relied on physical infrastructure and manual processes, with a focus on affluent segments and corporate clients, [while] digital banks, by contrast, are mobile-first, data-driven, and designed for scale across underserved mass-market segments,鈥� Mr. Krasnov said in an e-mail interview.

MORE PLAYERS
Mr. Krasnov explained that the lifting of the moratorium reopens a crucial avenue for innovation in the sector. This, he added, is a positive step that recognizes the need for increased competition, better services, and broader coverage 鈥� especially for consumers who are underbanked or entirely excluded.

Manish Bhai, founder and president and chief executive officer at UNO Digital Bank, said that the interest from new players confirms that the country is a highly promising market for digital banking.

鈥淭he central bank鈥檚 decision to reopen the window 鈥� this time with stricter differentiation requirements 鈥� is a clear sign of confidence in the sector鈥檚 long-term potential,鈥� Mr. Bhai said in an e-mail.

For Shailesh Baidwan, Maya Group president and Maya Bank cofounder, the central bank has set a high bar for new applicants, requiring them to present unique value propositions, innovative business models, and demonstrate their readiness to operate sustainably.

He further explained that this rigorous licensing process ensures that only players who can set themselves apart and contribute to the financial ecosystem 鈥� particularly by reaching untapped or underserved segments 鈥� will be granted a digital banking license.

鈥淭he added focus on value and innovation aligns with the BSP鈥檚 vision of advancing financial inclusion through meaningful, differentiated services,鈥� he said.

The entry of more digital banks can enhance competition and financial inclusion, provided that the regulatory capacity of the central bank is strong enough to manage the associated risks, Mr. Manzano said.

He highlighted that the core issue lies in supervision if the BSP can effectively oversee digital banks, especially in areas such as credit risk, cybersecurity, and compliance.

However, he cautioned that if supervision capacity is limited, the risk of destabilizing the system increases.

鈥淚n that case, stricter entry requirements would be prudent. The long-term viability of these banks will depend on both their business models and the strength of the regulatory environment,鈥� he said.

PITFALLS IN REGULATORY COMPLIANCE
The BSP said that digital banks are facing various operational and regulatory challenges as they navigate the nascent of their operations. Among these, is the need for sustained investment in cybersecurity infrastructure to protect against increasingly sophisticated cyberthreats.

Additionally, maintaining strong capital buffers to support rapid business growth, and the establishment of comprehensive risk management frameworks tailored to digital banking operations is crucial.

The central bank also highlighted that strengthening risk management capabilities across key areas, including credit, technology, and internal control functions (such as audit and compliance is significant.

It added that enhancing these core areas is vital for sustaining financial soundness and aligning operations with long-term business strategies.

For UNO鈥檚 Mr. Bhai, compliance in digital banking is multifaceted but mainly, the challenge is balancing the speed of technology with the rigor of regulatory expectations.

He added that while digital banks operate in real time, regulations tend to prioritize stability and thoroughness over speed.

鈥淎s digital banks begin to serve more previously unbanked and underbanked customers, the regulatory framework will naturally evolve,鈥� he said.

Additionally, these new segments may have different needs, vulnerabilities, and risk profiles and forward-looking institutions must be prepared to adapt 鈥渁nd that means building with compliance baked into the company鈥檚 DNA from day one.鈥�

Meanwhile, Maya鈥檚 Mr. Baidwan reiterated that the central bank has been clear and consistent in laying out the regulatory requirements for digital banks.

鈥淭hese standards 鈥� whether around capitalization, governance, cybersecurity, or consumer protection 鈥� are straightforward and aligned with the broader goal of ensuring trust and stability in the financial system,鈥� he said.

He emphasized that similar with any fully regulated bank, the challenge is not in understanding the requirements, but in executing them consistently.

He also pointed out that for the new players, building the necessary infrastructure can be demanding, particularly in areas like risk management, compliance systems, and IT security.

INCREASED COMPETITION
The BSP said that the emergence of these digital banks is expected to intensify competition within the banking sector, particularly regarding product innovation, service delivery, and customer experience.

Traditional banks, which are burdened by high costs of maintaining extensive branch networks, may struggle to compete effectively in terms of market reach unless they accelerate their digital transformation and innovate their product and service offerings.

鈥淲hile this heightened competition may exert downward pressure on traditional banks鈥� margins, it also presents an opportunity for them to modernize, enhance operational efficiencies, and better align with evolving consumer demand for digital financial services,鈥� the central bank said.

Latest BSP data showed that as of end-March, digital banks鈥� total assets reached P125.49 billion, higher than the P96.9 billion posted a year earlier.

Meanwhile, these banks posted a combined net loss of P1.04 billion during the first quarter from a net loss of P2.07 billion a year earlier.

In comparison with traditional banks, Oikonomia鈥檚 Mr. Erece said that to remain profitable and competitive in the long run, traditional banks must embrace digital transformation to meet the demands of customers seeking efficiency, convenience, and speed.

鈥淭raditional banks will still have robust revenue streams from traditional users such as older demographics and larger institutions,鈥� he said.

For Maya, with banking penetration in the country still low, access to formal credit for individuals and small businesses is still highly limited.

鈥淭he vast majority of loans from the banks are extended to corporates, while consumers and small businesses have limited access to unsecured credit. These gaps underscore the ongoing need for inclusive, accessible, and technology-driven financial solutions.鈥�

For Tonik Bank, traditional banks have focused on corporate lending and high-net-worth retail customers, while overlooking unsecured consumer credit and small businesses.

Given this, Mr. Krasnov explained that the gap exists due to legacy banks lack the operational models and risk appetite needed to profitably serve these markets.

鈥淒igital banks are now capturing that opportunity by deploying alternative data, automated underwriting, and embedded distribution models like payroll deduction or point-of-sale lending.鈥�

He said that these models are structurally better suited to serve the mass market at scale.

For UNO Bank, the biggest shift is not only technological but also behavioral.

鈥淐ustomers today expect more from their banks. It鈥檚 no longer a seller鈥檚 market. It鈥檚 a buyer鈥檚 market 鈥� driven by expectations shaped by seamless experiences in retail, transport, entertainment, and logistics,鈥� Mr. Bhai explained.

He further explained that banks are no longer just compared to other banks but to the best digital experiences available.

Digital banks, he added, are structurally designed to meet these expectations.

鈥淲ith leaner cost bases and modern tech stacks, we deliver faster onboarding, lower fees, and deeply personalized services 鈥� especially for mobile-first and underserved segments.鈥�

However, he pointed out that this shift is not a zero-sum game. Traditional banks will still hold advantages 鈥� such as capital scale, brand equity, and long-standing client relationships.

鈥淚nstitutions that can鈥檛 evolve may see margin compression and market share loss, especially among younger, more digital native users.鈥�

ECONOMIC GROWTH 鈥楧RIVERS鈥�
Digital banking services can improve access to credit, leading to higher consumer spending and potential business expansions which are both vital to economic growth.

鈥淎 well-managed growth of credit to pair along with growth in productivity leads to faster economic growth. In addition, more players mean more competition and hopefully leads to better services and even job generation if more players are willing to enter the space,鈥� Mr. Erece said.

UNO Bank鈥檚 Mr. Bhai said that the entry of new digital banks has the potential to contribute to long-term economic growth 鈥� but not by simply increasing the number of players.

鈥淭he real value lies in how these banks expand access to new services capital, especially for individuals and small businesses that the traditional system often overlooks.鈥�

Moreover, he said that digital banks are structurally better equipped to cater to the evolving nature of work. As more people earn income through freelance platforms, remote work, and digital entrepreneurship, there is a need for financial institutions that can understand and support non-linear income patterns, thin-file customers, and real-time financial needs.

Meanwhile, Mr. Krasnov of Tonik Bank said that access to formal credit is a proven driver of household resilience and economic activity, explaining that when consumers can borrow safely 鈥� whether to manage expenses, invest in education, or purchase durable goods 鈥� it stimulates consumption and improves quality of life.

Similarly, when small business can access working capital, they grow and have increased profits and hire more staff.

鈥淒igital banks, by lowering the cost of service delivery and expanding reach, have a unique role in catalyzing this type of growth,鈥� he said.

He said that digital banks can drive both broader access and better quality 鈥� and that鈥檚 the engine of long-term impact.

For Maya Bank, digital banks have the potential to support long-term economic growth, particularly if players can meaningfully reach underserved segments, enable financial activity, and introduce innovation that deepens trust and engagement in the financial system.

CHEAPER cross-border remittances, greater financial inclusion, enhanced liquidity management, reduced settlement risks, and financial stability support are the many promises of central bank digital currency (CBDC) to the country鈥檚 financial landscape. But would a digital peso work in the Philippine financial system?

A CBDC is a form of digital currency issued by a country鈥檚 central bank. It was like cryptocurrencies, except that its value is fixed by the central bank and is equivalent to the country鈥檚 fiat currency.

Last year, the country鈥檚 central bank completed its testing phase for Project Agila, its prototype wholesale CBDC.

Rizal Commercial Banking Corp. (RCBC) views the potential adoption of a CBDC as a strategic move toward modernizing the Philippine financial ecosystem.

鈥淐BDCs provide a secure, efficient, and transparent alternative to physical cash, enabling real-time, government-backed digital settlements that enhance the integrity of payments nationwide,鈥� said Angelito M. Villanueva, RCBC executive vice-president and chief innovation and inclusion officer.

China Banking Corp. (Chinabank) recognizes that the adoption of wholesale CBDC technology can bring significant benefits to the banking system.

鈥淭hrough Project Agila, we have observed that wholesale CBDC (wCBDC) can facilitate 24/7 domestic fund transfers, leading to enhanced efficiency in interbank settlements and faster turnaround times for financial transactions,鈥� said Delfin Jay M. Sabido IX, Chinabank chief innovation and transformation officer.

There are two types of CBDC, wholesale and retail. Financial institutions are the primary users of wholesale CBDCs in which the BSP is introducing in the country, while retail CBDC are for consumers鈥� and businesses鈥� use.

Financial institutions included in the pilot study see CBDCs as a powerful enabler and have the potential to promote broader financial inclusion.

鈥淒esigned with offline capabilities, CBDCs can reach unbanked populations in geographically isolated and disadvantaged areas. Even without internet access, individuals can transact digitally using feature phones or offline wallets via SIM toolkit, Bluetooth, or QR-based solutions,鈥� Mr. Villanueva of RCBC said.

Mr. Villanueva also added that CBDCs also enable direct government-to-person disbursements, bypassing the need for a bank account and ensuring aid reaches the intended recipients fast and securely.

鈥淯nderbanked and underserved Filipinos can indirectly benefit from wholesale CBDCs through micro, small, and medium enterprises, cooperatives, lending institutions, and the government sector. These entities can leverage the efficiencies and capabilities of wholesale CBDCs to provide better financial services and support to their communities,鈥� said Mr. Sabido of Chinabank.

HOW IT WORKS
According to Mr. Villanueva, the BSP selected Hyperledger Fabric, a distributed ledger technology, as the foundation for pilot testing due to its ability to record, synchronize, and share data across a network of participants. This makes it ideal for off-hours inter-institutional fund transfers 鈥� such as during evenings, weekends, holidays, or when the PhilPaSSplus system is offline.

The selection was based on its strengths in security, system access, 24/7 availability, interoperability, and programmability 鈥� all critical to building a resilient CBDC infrastructure.

RCBC said that digital access alone isn鈥檛 enough. In areas with limited or no internet connectivity, hybrid solutions will be essential. This includes offline-capable CBDC transactions and mobile-based technologies like SIM toolkit integration.

Equally important is the human element. As the country undergoes digital transformation, trusted community intermediaries are critical to bridge the gap.

The project aims to assess the technology鈥檚 viability and its potential to improve financial operations, but some advantages and disadvantages were experienced by banks in the implementation of CBDC during pilot testing.

RCBC鈥檚 participation in the Project Agila pilot presents a unique opportunity to explore the real-world functionality and potential of a wCBDC. The pilot demonstrated key benefits, including faster settlement speeds, reduced reliance on clearing intermediaries, and greater transaction transparency.

鈥淗owever, the pilot also surfaced important challenges, such as the need to integrate CBDC systems with legacy banking infrastructure, which often lacks built-in interoperability,鈥� said Mr. Villanueva.

Broad adoption will require extensive user education and strategic change management to avoid fragmentation and ensure alignment across financial institutions, Mr. Villanueva added.

Chinabank experienced several positive outcomes, including the ability to conduct programmable transactions tailored to specific systems using smart contracts, faster interbank settlements, and expanded flexibility in fund management.

鈥淭hese developments have the potential to significantly improve transaction efficiency and operational risk management,鈥� said Mr. Sabido

He added that areas for further study may include the need for robust cybersecurity measures to protect against potential threats, the requirement for comprehensive staff training to ensure smooth adoption, and the necessity to update existing regulatory frameworks to accommodate new technological advancements.

READY OR NOT?
As one of the Philippines鈥� most digitally progressive banks, RCBC is strongly positioned to lead in the CBDC and digital finance space.

鈥淩CBC has built a proven track record in delivering innovative, inclusive, and impactful financial technologies. We鈥檝e shown that innovation and inclusion can 鈥� and must 鈥� go hand in hand. We have launched groundbreaking platforms designed to bring banking closer to every Filipino,鈥� Mr. Villanueva said.

Chinabank鈥檚 participation in Project Agila has enabled it to thoroughly assess their technical, operational, and strategic capabilities in adopting wCBDC technology.

鈥淐hinabank continues to monitor developments closely and will carefully evaluate future requirements, opportunities, and challenges as the project progresses. We remain committed to adapting and evolving our systems to ensure readiness for innovative financial technologies,鈥� Mr. Sabido said.

The BSP said that the project will likely be launched by 2029, still within the six-year term of BSP Governor Eli M. Remolona, Jr.

But these same sentiments will still linger in the succeeding quarters, analysts said.

The bellwether Philippine Stock Exchange index dropped by 10.5% year on year to 6,180.72 at the end of the first quarter.

However, the financial subindex, which the banks fall under, climbed by 16.7% annually to 2,374.49 during the period.

In the first three months of the year, 11 of the country鈥檚 14 listed universal and commercial banks鈥� share prices posted growth year on year.

China Banking Corp. (ticker symbol: CBC) led the pack with a 154.8% annual surge in its share price at the end of the first quarter. It was followed by Philippine National Bank (PNB, 148.2%), Asia United Bank Corp. (AUB, 75%), Rizal Commercial Banking Corp. (RCB, 15.4%), and Philippine Trust Co. (PTC, 15.3%).

Meanwhile, Union Bank of the Philippines鈥� (UBP) stock declined by 26.7% annually as of end-March, while Philippine Bank of Communications (PBC) dropped by 2.7% drop and BDO Unibank, Inc. (BDO) slipped by 0.8%.

鈥淭he performance of listed banks in the first quarter was supported by favorable macroeconomic tailwinds 鈥� namely sustained GDP (gross domestic product) growth and a marked decline in inflation 鈥� alongside a stable regulatory environment. The BSP鈥檚 cautious stance on monetary easing preserved credit stability while allowing room for potential policy support,鈥� said Arielle Anne D. Santos, an equity analyst at Regina Capital Development Corp.

鈥淭he weaker-than-expected first-quarter GDP growth (largely due to reduced exports and slower investments amid global trade uncertainties), and still high interest rates have likely contributed to the moderation in industry loan growth for the quarter,鈥� said Abigail Kathryn L. Chiw, BDO Securities Corp. first vice-president and head of research.

She added that the lag effect of the central bank鈥檚 policy rate cuts has tempered lending margins for some banks, with the benefit of the reserve requirement ratio (RRR) cuts yet to reflect in the coming quarters.

Jarrod Leighton M. Tin, an equity research analyst at DragonFi Securities, Inc., said that the RRR cuts led to a decline a banks鈥� deposits with the BSP, effectively freeing up more liquidity used for lending.

鈥淭his easing measure has, to some extent, supported loan growth across the banking sector. With the BSP targeting a gradual reduction of the RRR to 0% by 2028, we expect this to contribute to more sustainable credit expansion and help keep NIMs (net interest margins) more manageable, especially as policy rates continue to ease,鈥� he said.

The Philippine economy grew by 5.4% in the first three months of the year, missing the government鈥檚 6-8% growth target.

Inflation eased further to almost five-year low of 1.8% in March, bringing the first quarter average to 2.2%, within the 2-4% target of the Bangko Sentral ng Pilipinas (BSP).

The central bank鈥檚 key rate was left untouched in the first three months of the year. But in April, BSP resumed its easing cycle by cutting 25 basis points (bps).

The central bank has so far slashed 100 bps to its key rate since it started its easing cycle in August last year.

Also in February, the central bank announced it will slash the RRR of big banks and nonbank financial institutions with quasi-banking functions by 200 bps to 5% from 7%, effective March 28.

It also trimmed the digital banks鈥� RRR by 150 bps to 2.5%, while the thrift lenders鈥� will be lowered by 100 bps to 0%.

Since October last year, rural and cooperative banks鈥� RRR has been zero.

RRR represents the share of deposits that banks are mandated to retain instead of deploying as loans. A reduction in the RRR effectively frees up liquidity within the banking system, enabling lenders to extend more credit to borrowers and stimulate economic activity.

The country鈥檚 largest banks posted an aggregate net income of P94.49 billion as of end-March, growing by 8.6% year on year from P87 billion, data from the BSP showed.

Similarly, the universal and commercial banks鈥� total assets rose by 7.6% to P25.91 trillion as of end-March, according to central bank data. The big banks鈥� gross total loan portfolio, which forms the bulk of the total assets, expanded by 13.8% to P14.47 trillion during the period.

The gross nonperforming loans ratio of these big banks improved to 3.02% as of end-March from 3.07% in the same period last year.

Their NIM 鈥� a ratio that measures banks鈥� efficiency in investing their funds by dividing annualized net interest income to average earning asset 鈥� likewise inched up to 4.11% as of end-March from 3.96% a year ago.

Big banks鈥� provision for credit losses, however, climbed by 41.2% to P29.46 billion as of end-March from P20.87 billion last year.

STANDOUTS
BPI and CBC stood out in the first quarter amid strong earnings and loan expansion during the period, analysts said.

鈥淏PI delivered robust results, underpinned by broad-based loan expansion and improved net interest income, reflecting solid execution in a benign credit environment,鈥� Regina Capital鈥檚 Ms. Santos said.

鈥淎mong the index banks, BPI and CBC stood out, on sustained double-digit earnings growth and RoE (return on equity) of over 15% for the quarter, on the back of: 1) robust loan growth (13% and 19%); 2) better NIMs (+30 bps and +7 bps y-y); and 3) solid asset quality (with NPLs still low at 2.26% and 1.5%),鈥� BDO Securities鈥� Ms. Chiw said.

Meanwhile, UBP and Security Bank Corp. (SECB) were singled out as underperformers during the period.

鈥淯nionBank鈥檚 net income for the first quarter of 2025 was P1.43 billion, a 28.5% decline from the same time the year before. The primary reasons for this decline were front-loaded nonrecurring expenses and one-time, tax-related write-offs from a subsidiary,鈥� said Juan Alfonso G. Teodoro, an equity research analyst at Timson Securities, Inc.

鈥淪ecurity Bank surprisingly stood out negatively as Moody鈥檚 downgraded the bank鈥檚 outlook from stable to negative,鈥� DragonFi鈥檚 Mr. Tin said.

鈥淪ECB earnings results came in behind consensus estimate likely due to higher-than-expected provisions in 1Q25. Investor sentiment was further dampened by Moody鈥檚 recent outlook revision from stable to negative, which outlined concerns over its capital ratios given the impact of its loan growth to risk-weighted assets, and the stake acquisition in Home Credit Philippines,鈥� said Ralph Jonathan B. Fausto, research associate in Chinabank Securities Corp.

Last May, SECB completed its acquisition of 25% in HC Consumer Finance Philippines, Inc. (aka Home Credit) from MUFG Bank Ltd. for P10.365 billion.

THINGS TO WATCH OUT FOR
Moving forward, investors should continue to monitor the central bank鈥檚 policy stance and its current trajectory of rate cuts as well as RRR cuts and GDP growth, DragonFi鈥檚 Mr. Tin said.

鈥淏anks may continue to target consumer loans to avoid steeper NIM compression amid lower rates. However, this can also lead to higher provisions for loans, weighing on earnings. Although, this is unlikely to have a serious impact as the banks remain very healthy due to their high NPL coverage,鈥� he added.

鈥淚nvestors should closely monitor asset quality as banks continue to expand their exposure to the high-yield segments in an effort to sustain lending margins amid expectations of further policy easing,鈥� Chinabank Securities鈥� Mr. Fausto said.

鈥淲e believe market participants should closely monitor lingering global trade uncertainties, particularly the outcome of US President Trump鈥檚 tariff measures once the 90-day moratorium expires,鈥� said Jash Matthew M. Baylon, an equity analyst at First Resources Management and Securities Corp.

He added that a renewed flare-up in trade tensions could pressure the Philippine peso and strain foreign exchange liquidity in the banking sector.

In addition, BDO Securities鈥� Ms. Chiw said: 鈥淩isks of reaccelerating inflation and interest rates remaining high and restrictive, could also have knock-on effects to the ability of borrowers to repay their debts. And such risks may require banks to incur more loan loss provisions to buffer against the potential rise in loan delinquencies.鈥� 鈥� JPGV

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By Matthew Miguel L. Castillo

TARIFFS imposed by United States President Donald J. Trump, along with uncertain trade and fiscal policies, drove the local financial market鈥檚 movement in the first quarter of 2025, analysts said.

These factors are expected to persist in the second quarter as well, the central bank said.

The Philippine Stock Exchange index (PSEi), the barometer for the country鈥檚 stock market, closed at 6,180.72 in the first quarter, declining 10.5% from 6,903.53 a year earlier.

Meanwhile, data from the Bankers Association of the Philippines showed the peso closed at P57.21 against the dollar in the January-to-March period, weakening by 1.7% from P56.24 a year earlier.

At the secondary bond market, domestic yields fell by an average of 3.59 basis points (bps) annually based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates posted on the Philippine Dealing System鈥檚 website as of end-March.

TRADE WAR WOES
Analysts attributed that US trade policies have been the primary catalyst of the domestic market movements during the period.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said that there was a lot of uncertainty in the global markets due to Mr. Trump鈥檚 unclear intentions on global tariffs.

This uncertainty, he added, will likely persist in the second quarter, 鈥渁s uncertainty of the postponed and more punitive 鈥榬eciprocal鈥� tariffs continues amid their 90-day pause.鈥�

Metropolitan Bank & Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa said that Mr. Trump鈥檚 stance on 鈥淯S exceptionalism鈥� was already expected by markets which drove their sentiment in the direction during the period.

For Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., global financial markets were attentive to Mr. Trump鈥檚 plans and policies, similar with the fourth quarter.

Additionally, he said that new policies, especially on tariffs and taxes, will impact trade and interest rates. He added that gradual economic growth dragged domestic markets as growth expectations turned pessimistic.

Meanwhile, for Sun Life Investment Management and Trust Corp. economist Patrick M. Ella, Mr. Trump鈥檚 moves on trade seen in the last quarter 鈥渃ame worse than expected鈥� from speculations held for his administration last year.

Early in February, Mr. Trump has signaled his plans to announce reciprocal tariffs on many countries, with the intent to reshape global trade relationships in favor of the US.

By April, Mr. Trump implemented a 10% blanket tariffs on all its trading partners. However, the plan to impose higher reciprocal tariffs on certain countries was paused for 90 days or until July.

Mr. Trump slapped a 17% reciprocal tariff in the Philippines, the second lowest among Association of Southeast Asian Nations member countries trailing behind Singapore鈥檚 baseline rate of 10%.

The Philippine economy grew by 5.4% in the first quarter, official government data showed, falling short of the 6%-8% target of the government for 2025.

The expansion was driven by government spending climbing to 18.7% and private consumption, which accounts for 70% of the national economy, picking up by 5.3%.

State spending was fueled by the government frontloading infrastructure spending before the 45-day election ban which started on late March while the growth in household spending was due to easing inflation.

For the Bangko Sentral ng Pilipinas (BSP), uncertainty surrounding US trade and fiscal policies, coupled with their perceived impact on the global economy, dragged the prices of local bonds, equities, and foreign exchange (FX) markets during the period.

However, it added that positive investor sentiment fueled by easing domestic inflation and heightened expectations of a policy interest rate reduction tempered the downturn in the domestic market.

Latest government data showed that in March, inflation eased by 1.8%, the slowest in almost five years since the 1.6% posted in May 2020.

This brought inflation to average 2.2% in the first quarter, settling within BSP鈥檚 target of 2-4%.

BSP RESUMES EASING CYCLE
On the other hand, the central bank has slashed key rates by a total of 100听 bps since it began its easing cycle in August last year.

During its first policy meeting in February, the central bank held interest rates steady at 5.75%. But in its April meeting, the BSP cut borrowing costs by 25 bps, resuming its easing cycle.

Policy rate cuts are implemented by central banks to stimulate productivity and growth as lower rates allow for more spending in the economy when the threat of inflation is low.

For Pantheon鈥檚 Mr. Chanco, he said that it is still early to determine what implications the rate cuts have had on financial markets as it takes time for these rate cuts to translate into stronger real economic activity.

鈥淢onetary policy in the Philippines remains very tight despite the cuts pursued to date. This is still very much reflected in business surveys who still see credit access and high interest rates as a material constraint,鈥� Mr. Chanco said.

Meanwhile, Metrobank鈥檚 Mr. Mapa, rate cuts are designed to bolster growth through the credit channel, as monetary easing is expected to fire up modest capital formation.

Mr. Erece, on the other hand, expects monetary policy will be further relaxed this year but cautioned that even though there are foreign exchange risks looms with a dovish BSP and a hawkish US Federal Reserve, the underwhelming growth and employment indicators in the country highlight the need for expansionary fiscal and monetary measures.

鈥淩ate cuts can spur growth through higher activity in lending. Furthermore, interest rates set by the central bank and bond yields follow a similar trend,鈥� he explained.

He also noted that monetary policy can serve as benchmark of expectations on the economy as rate cuts signal confidence that inflation is managed and money can be 鈥渃heaper鈥� again.

WHAT MARKET TRENDS SHOULD BE MONITORED
鈥淕iven a more manageable inflation outlook and emerging risks to growth, the BSP saw scope to further reduce the policy interest rate in April. The continued monetary policy easing cycle will help sustain domestic economic activity amid risks of a global slowdown,鈥� the central bank said.

The BSP recognizes that tariffs and other policies in advanced economies could hinder global growth, which may pose downside risks to the local economy, it added.

It further explained that even though the country is relatively insulated from the tariff wars due to its limited exposure to the US, factors such as potential supply chain disruptions, weak global demand, and subdued investor sentiment could impact domestic growth.

鈥淎 more accommodative monetary policy stance should enable banks to allocate additional funds toward more productive uses, such as loans and investments,鈥� the BSP said.

Additionally, it will continue to take a measured approach to monetary easing.

For Mr. Chanco, he believes that there is still a general under-appreciation of how sluggish economic growth is in the country regarding domestic demand.

鈥淢arkets may also favor the likes of the Philippines this year because its domestic demand driven economy is much less exposed to further flare-ups in global trade tensions,鈥� he added.

Monetary policy easing may lead to increased capital expenditures by firms as borrowing costs decrease, which could result in higher consumer spending, Mr. Erece said.

鈥淢onetary policy easing is something that the equities market monitor and rate cuts seem to be good news for the market,鈥� he advised, adding that developments that include tariffs, trade conflicts, and political talks, should be monitored as well.

FIXED-INCOME MARKET
Mr. Chanco: Government bond yields probably have further room to fall from our vantage point, as more rate cuts are likely to be priced-in, with the Monetary Board likely to see more space for easing.

Mr. Erece: Bond yields may continue to slip especially on shorter tenors, especially as growth expectations and interest rate cuts continue while longer tenors may see higher yields again.

Mr. Mapa: BSP easing should support with investors also keeping an eye on [Bureau of the Treasury] issuance volume and timing.

EQUITIES
Mr. Erece: Strong earnings for most industries can boost confidence with the growth potential of publicly listed corporations. Rate cuts may be a sign of faster economic activity. Furthermore, rate cuts can also increase market premium, thus making equities more attractive.

Mr. Chanco: Equities will probably continue to recoup some of their [first quarter] losses, as long as the news on US trade talks with a host of countries continues to show forward progress before the end of the 90-day pause.

Mr. Ella: [They may move] sideways for the quarter.

FOREIGN EXCHANGE MARKET
Mr. Erece: A dovish BSP with a hawkish Fed may cause the peso to depreciate this year. Although the peso experienced an appreciation rally last March to April, this was mainly caused by the fall of the USD as seen by the [US Dollar Index].

Mr. Chanco: [The peso鈥檚] recent strong run against the US dollar looks overdone, so I expect to see some downward retracement in the remaining weeks of the [second quarter].

This aligned with the central bank鈥檚 goal to harness the potential of these banks in bringing positive impact to the financial system while remaining considerate to possible risks.

鈥淣ew digital bank applicants will be subjected to a rigorous licensing process that will look into their value proposition, business models, and resources capabilities,鈥� the BSP said in a听.

It reiterated that this follows the standard licensing criteria which includes the assessment of the banks鈥� ownership and control structure, suitability of shareholders, fitness and propriety of directors and senior management, adequacy of capital, as well as banks鈥� strategic and operating plan, including an appropriate system of corporate governance and risk management.

The BSP said in an e-mail that its digitalization agenda includes not only traditional banks but also rural banks.

Given this, the agenda will encourage customers to better serve them by making services accessible online on the back of their brick-and-mortar banking operations.

Thanks to BSP鈥檚 Rural Bank Strengthening Program (RBSP), coupled with the initiatives of rural banks鈥� themselves, the rural banking system in the country remains strong and stable, Rural Bankers Association of the Philippines (RBAP) Executive Director Rafael Francisco D. Amparo said in an e-mail.

Launched in 2022 by the central bank, the RBSP is a structured program which aims to strengthen the rural banking landscape to provide better services to rural areas.

Among those expected to apply for digital bank licenses are financial technology (fintech) companies that entered the market through rural banks.

Previously, several rural banks have been used as an entry point for foreign fintech companies to establish digicentric financial institutions.

Among these are Singaporean-based consumer internet company Sea Ltd. and Streetcorner Group, an association between Indonesia-based fintech company Akulaku and nonlife insurer Metropolitan Insurance Co., Inc.

Sea, which owns the e-commerce platform Shopee, acquired Banco Laguna, Inc. in 2020 and later on launched its digital banking app SeaBank in June 2022.

On the other hand, Streetcorner Group started the digital transformation of Rural Bank of Cavite City, Inc. and launched OwnBank in June 2022.

鈥淲e believe that these rural banks that transitioned to digital banks were always meant to be digital banks in the first听place,鈥� RBAP鈥檚 Mr. Amparo said.

He emphasized that these banks鈥� foreign fintech shareholders recognized the appropriateness of acquiring rural banks as an entry strategy and then developing digital capabilities until reaching maturity as a digital bank.

He said that digitalization provided rural bank clients fast and convenient services to rural bank clients and noted that utmost care should be observed to manage the vulnerabilities that digitalization inadvertently opens.

BE COMPLIANT
The central bank recognizes this value, and the contribution foreign investors bring in to drive growth in the financial system.

However, it still stands its ground: rural banks operating as digital banks should comply with regulatory requirements and upgrade their licenses.

鈥淣o bank should听be operating as a digital bank using a rural banking license unless they convert their license to a digital banking license,鈥� the BSP said in an e-mail.

鈥淪ome of these investors have bought a few rural banks to convert them into digital banking platforms. While new investment is a positive development, it requires careful assessment due to potential regulatory and financial risks,鈥� the BSP said.

鈥淲hile we do not see material risk at this point, we don鈥檛 want digital banks created via the 鈥榖ackdoor,鈥� or operating under rural banking regulations,鈥� it added.

鈥淚f a rural bank is acting like a digital bank, then it should comply with the appropriate capital and other regulatory requirements for a digital bank,鈥� the central bank said.

The BSP also emphasized that foreign entities must understand the local financial landscape to manage risks effectively.

The new technology, it said, would help rural banks become more resilient, improve operations, and enable them to offer better financial products and services to their original market through more distribution channels.

It is a good move that rural banks are shifting towards digitalization, however, adherence to regulatory compliances should be considered.

There are possible risks if they fail to meet the requirements set by the central bank.

According to the BSP, rural bank turned digital banks will face higher capital and prudential requirements but will be given a transition period to comply and the central bank will closely monitor its progress and ensure timely regulatory interventions.

The BSP said that complying with the higher capital requirements and specific regulations are among the main measures rural banks should adhere to.听

Rural banks-turned-digital banks must maintain a minimum capital of P1 billion, under the BSP Circular No.1154.

Additionally, the BSP will apply targeted supervisory actions to thrift, rural, and cooperative banks converting to digital banks or digitalizing their operations, setting key indicators to assess their digital operations.

These measures will include regulatory requirements on capitalization, prudential ratios, and governance.

鈥淯ltimately, these digital banks will be supervised based on their risk profile and activities,鈥� the central bank said.

NEOBANKS
Aside from digital banks, another nontraditional financial entity has been gobbling up rural banks 鈥� the neobanks.

Neobanks are a digital-only financial intermediaries that operates through applications and websites but still offer services and operations similar to banks (or in this case, rural banks).

RBAP鈥檚 Mr. Amparo听earlier said听that neobanks are the 鈥渨ay forward鈥� for the rural banks.

听(Netbank), formerly Community Rural Bank of Romblon (Romblon), Inc., is operating as a neobank but with听rural banking license.

Founded in 2019 by Gus Poston听and David Paulo Dela Paz, it was the first banking-as-a-service platform in the country, which aims to help other fintech companies offer financial products.

鈥淸Netbank] does not hold a digital bank license but operates as a fully digital-focused financial institution, categorized as a neobank,鈥� Netbank Executive Director and Head of Branch operations Alexandra Q. De Chavez said in an e-mail.听

鈥淭he Bank plans to retain its rural banking license, utilizing its existing regulatory compliance and service offerings through the previously secured EPFS (Electronic Payment and Financial Services)听and EMI (Electronic Money Issuer) licenses,鈥� Ms. De Chavez said.

, also known as the Rural Bank of Sta. Rosa Laguna, Inc., is another neobank operating under a rural bank license.

The neobank was founded by Pavel Fedorov, George Chesakov, and Raffy Montemayor and its services include buy now, pay later credit products, as well as high-interest rate deposits.

It bought 59.7% of the rural bank in 2024.

Salmon鈥檚 chairman, Raffy Montemayor,听explained that they are not a digital bank but Salmon is 鈥渂uilding a modern bank with branches, ATMs, and other types of physical presence and with customer interactions held offline, online, and everything in between.鈥�

Mr. Montemayor added that Salmon plans to upgrade to a thrift bank license subject to BSP鈥檚 approval which will build its presence in the country through various channels and a capital base more than what most digital banks have.

鈥淯nlike digital banks, we will combine physical branches with best-in-class technology solutions, ensuring access to customers both offline and online,鈥� he said in an e-mail.

鈥楥翱翱笔贰罢滨罢滨翱狈鈥�
If rural banks will convert to digital banks, then it meant that it would face higher capital and prudential requirements. The BSP said that it will monitor these banks鈥� progress and ensure timely regulatory interventions.

鈥淩ural banks should assess the financial, technological, and operational resources needed for digitalization,鈥� BSP said.

This includes acquiring tech infrastructure and innovations like cloud-based core banking systems, cybersecurity, and fraud management tools.

The central bank also added that management and staff should build the technical expertise necessary for successful digital transformation.

鈥淒igitalization creates unique challenges for the entire financial system,鈥� RBAP鈥檚 Mr. Amparo said. 鈥淲e are confident that the rural banking industry and the entire banking industry for that matter can turn these threats into opportunities for cooperation and collaboration.鈥�

For its part, the central bank sees digital banks as key drivers of financial inclusion contributing innovative financial solutions.

鈥淲ith the rise of digital-focused rural banks, the BSP anticipates a 鈥榗oopetition鈥� dynamic among these institutions, benefiting all stakeholders,鈥� the central bank said. 鈥斕�AMPY听with KHH

FORGET STEEL VAULTS 鈥� today鈥檚 financial industry is built with code, and security is a high-stakes game of who finds the digital backdoor first.

The fintech industry continues to expand. Data from the Bangko Sentral ng Pilipinas (BSP) showed that digital transactions grew to 55.3% of the total retail transaction value in 2023 from 40.1% in 2022, signaling a growing acceptance of digitalization among consumers.

Similarly, the central bank resumed accepting digital banking license applications effective Jan. 1, 2025, now allowing four more digital banks to operate in the Philippines.

Amid rapid growth, financial institutions in the Philippines continue their race to fortify their digital operations. The BSP has reinforced its cybersecurity stance through Memorandum M-2024-029, which provides detailed guidelines for financial institutions following the implementation of the Anti-Financial Account Scamming Act (AFASA) in July 2024.

The AFASA law was only a glimpse of what was to come in the 2024-2029 Financial Services Cyber Resilience Plan (FSCRP), a roadmap for the Philippine financial ecosystem鈥檚 security, launched August last year.

鈥淚t鈥檚 our commitment to creating a robust, secure, and resilient听financial system that can withstand cyber听incidents and recover quickly from them,鈥� BSP Governor Eli M. Remolona, Jr. said at the launch of the FSCRP.

Deep Web Konek, a cybersecurity advocacy group based in Manila, said that Philippine banks are becoming more proactive in their cybersecurity efforts.

Its coverage on breaches and threat intelligence reveals that data from myriads of Philippine companies continue to be leaked, to be sold in dark web markets 鈥� including banking credentials.

鈥淭his indicates gaps in detecting and mitigating breaches before fraud occurs,鈥� the group said in an e-mail interview.

Considering these breaches, Philippine banks have made progress in strengthening their cybersecurity, adopting measures like penetration testing and red teaming, the group added.

A key component among the requirements listed in the M-2024-029 memo is a mandatory Vulnerability Assessment and Penetration Testing (VAPT), which must be performed to ensure Bangko Sentral-supervised financial institutions (BSFIs) maintain a proper Information Security Program.

鈥淗owever, inconsistencies remain, and not all institutions rigorously implement these defenses,鈥� Deep Web Konek said.

鈥淪ome banks pass security audits but remain vulnerable to real-world attacks, especially through social engineering and application programming interface exploits.鈥�

While banks and financial service providers rush to digitize their operations, the challenge lies in ensuring their security measures keep pace with innovation. This dynamic has spurred both banks and cybersecurity firms in the Philippines to strengthen local VAPT capabilities, recognizing it as a critical aspect of modern financial security.

WHAT IS VAPT?
The finance industry continues to be compromised. IBM鈥檚 X-Force Threat Intelligence Index showed finance and insurance ranked second among targeted sectors in 2023, accounting for 18.2% of cyberattacks globally.

Locally, cybercrime complaints have tripled to 10,004 reported cases in 2024, totaling almost P198 million in losses among cybercrime victims, data from the Cybercrime Investigation and Coordinating Center showed.

Cyber fraud losses among BSFIs also soared by 212% year on year in 2023, with account takeovers, identity theft, and phishing accounting for almost 60% of total cases, according to the BSP.

These figures underscore the growing necessity of ensuring, through rigorous testing, that banks are safe.

鈥淰APT requires a risk-based approach to effectively identify and mitigate security vulnerabilities,鈥� said the BSP in an e-mail statement.

The BSP Manual of Regulations for Banks requires these tests for BSFIs. Vulnerability assessments (VA) refer to the identification of security vulnerabilities in systems and networks using automated vulnerability scanners.

Meanwhile, penetration testing (PT) involves subjecting systems or networks to simulated or real-world attacks that exploit vulnerabilities under controlled conditions. Both terms are often jointly referred to as 鈥淰APT.鈥�

鈥淭his risk-based approach tailors cybersecurity assessments to the unique complexities of each BSFI鈥檚 IT operations,鈥� it added.

鈥淰APT is a way for banks to ensure that the systems and applications they roll out to serve customers are being audited by a third party or an external provider, to ensure that the features or applications they roll out are secure,鈥� Secuna Software Technologies, Inc., a cybersecurity firm that offers penetration testing, said in a video interview.

BSFIs with digital or electronic financial services are also required to conduct VAPT tests at least annually.

鈥淢eeting the annual VAPT requirement involves careful planning, allocation of resources and execution,鈥� the Philippine National Bank鈥檚 (PNB) Office of the Chief Information Security Officer (CISO) and Data Privacy Officer (DPO) said in an e-mail interview.

鈥淓ach activity should be properly scheduled including assigning of champions and determining the scope of review, required tools, connectivity to the systems and credentials to be used in the testing.鈥�

鈥淏SFIs must ensure providers have the necessary expertise to meet their operational and security needs,鈥� said the central bank.

To make sure banking operations are not affected during VAPT exercises, separate setups are often employed to prevent tests from interfering with the bank鈥檚 critical systems.

Otherwise, attack simulations and exercises would be employed during non-critical days and hours, said Red Rock IT Security, a cybersecurity service provider.

鈥淚t鈥檚 also important to have backups and extra systems in place, so that in case of any setbacks, systems can be recovered quickly, minimizing downtime and potential data loss,鈥� it said in an e-mail interview.

Carlos T. Tengkiat, CISO of Rizal Commercial Banking Corp. (RCBC), said that business units within the scope of VAPT exercises also require coordination.

鈥淭hese include provisioning of test accounts, personnel to do a walkthrough of the system, and allocation of resources to address any findings that may come of the exercise,鈥� he said in an e-mail interview.

During the VAPT exercise, which could last upwards of a month, banks and cybersecurity firms cooperate with one another to find critical flaws in the bank鈥檚 systems, recommend changes, and implement solutions 鈥� all happening within a set timeframe.

鈥淰ulnerabilities are assessed on their impact. These are then addressed based on the criticality of the systems involved,鈥� Mr. Tengkiat said.

The PNB鈥檚 Office of the CISO/DPO added that remediation of the vulnerabilities is a collaborative effort between the business owner, Infosec and IT team.

鈥淭his requires remediation planning, analysis, testing, deployment and validation if the fix deployed resolved the issue.鈥�

Considering these extensive measures, VAPT exercises help banks reach global standards in security, strengthening consumer trust.

鈥淔inancial institutions must adhere to regulatory and international compliance requirements to follow cybersecurity best practices,鈥� Justin David G. Pineda, president of Pineda Cybersecurity, said in an e-mail interview.

Red Rock stated that institutions are implementing stronger and more reliable practices such as adhering to the CIS Critical Security Controls, a globally recognized benchmark for the implementation of safeguards for various systems.

鈥淕lobal benchmarks, like the Penetration Testing Execution Standard (PTES) and Open Worldwide Application Security Project (OWASP), are available for reference,鈥� said the BSP.

The central bank added that it does not accredit VAPT providers for BSFIs.

鈥淚nstead, it requires BSFIs to conduct due diligence using a risk-based approach when selecting service providers.鈥�

VULNERABILITIES
Through VAPT exercises, banks can work on preventing discovered exploits in their system, ensuring that their services are secure. In the industry, cybersecurity firms continue to discover common vulnerabilities in the financial industry.

Mr. Pineda said that his firm usually finds vulnerabilities in unpatched workstations and servers, with updates available that have yet to be implemented.

鈥淯nfortunately, vulnerabilities with critical severity can severely damage IT assets and exfiltrate confidential and highly confidential data.鈥�

He also added that parameter tampering is a common vulnerability they still observe in financial apps and sites.

鈥淔or example, you may send money supposedly worth P100 but modify it to P10,000 using tools. If successful, the data sent may be different, or you may even send money more than what you have in your account,鈥� Mr. Pineda said.

Likewise, Red Rock said that security features like one-time passwords (OTPs) were observed to be vulnerable points.

鈥淭here are instances such as the misconfiguration of OTP implementations which disrupt the intended process allowing the OTP to be bypassed or manipulated to even be received by the attackers.鈥�

It has highlighted several other security vulnerabilities, ranging from broken access controls that enable unauthorized account access to insufficient input validation that could allow balance manipulation through negative amounts.

Additionally, it has identified a lack of security awareness training that leaves organizations vulnerable to phishing and social engineering attacks.

Based on its evaluations with clients from the financial industry last year, Secuna has observed injection attacks, where malicious actors enter malware into ordinary text fields, giving hackers an entry point into a bank鈥檚 database.

It has also observed access control issues where users can access unauthorized areas or data, and authentication and session management issues where login systems and user sessions are not properly secured.

Additionally, Secuna鈥檚 data revealed information disclosure issues where sensitive data is unintentionally exposed, and security misconfigurations where systems are set up with weak or incorrect security settings.

SETBACKS
While VAPT exercises help banks identify and patch vulnerabilities in their systems, the process itself isn鈥檛 immune to challenges. The effectiveness of these security assessments often depends on complex interactions between the banks鈥� existing infrastructure and the cybersecurity firms鈥� testing capabilities.

In a double-bind, cybersecurity firms could get hindered by their own clients due to their clients鈥� technological setbacks. This affects the very tools and results these firms may use to test and diagnose vulnerabilities properly.

For Red Rock, a common challenge is the lack of usable logs for investigation 鈥� 鈥渁kin to investigating a crime scene without any security camera footage to review.鈥�

It also said that while capturing system snapshots is the crucial next step after a security incident, it frequently encounters cases where the relevant computers have already been wiped clean.

鈥淚n this instance, it would be comparable to investigating a crime wherein the victims鈥� bodies were already disposed of and missing,鈥� Red Rock said.

Meanwhile, Mr. Pineda said that despite outlining clear requirements and prerequisites during the planning and scoping phase, some clients attempt to proceed with incomplete data and setup due to the resource-intensive nature of the preparation process.

Another challenge for the firm is the depth of the assessment.

鈥淚n VAPT, you usually try to simulate what an attacker would actually do,鈥� Mr. Pineda said. 鈥淗owever, in actual testing, the customer will sometimes halt intrusive tests, which may affect the quality and results of the tests.鈥�

Secuna identified slow vulnerability remediation as a widespread challenge across all sectors, not just finance.

It added that despite offering a month of unlimited retesting and validation services to verify their clients鈥� security fixes, organizations often fail to address all identified vulnerabilities within this timeframe, even though such security issues demand urgent attention.

鈥淚t鈥檚 pretty much obligatory that [security vulnerabilities] should be addressed as soon as possible, because the longer we keep those vulnerabilities out in the open without fixing them, the higher the risk that they鈥檒l be discovered by malicious hackers or threat actors.鈥�

GOING BEYOND COMPLIANCE
These hindrances, as constraining as they may be, only point towards a need for more rigorous and VAPT exercises for financial institutions in the Philippines.

鈥淥rganizations should go beyond compliance by including more assets in the testing scope instead of just focusing on assets that are needed to meet regulatory requirements,鈥� Secuna said.

鈥淭he government should establish clear requirements for VAPT and Red Teaming engagements to ensure penetration testing is performed effectively, rather than relying solely on automated VA,鈥� Red Rock said.

鈥淚 always say that VAPT programs should be included in all phases of the IT service lifecycle,鈥� said Mr. Pineda.

鈥淚f we do security assessments as early as project initiation/inception, we can identify weaknesses and fix them prior to implementation.鈥�

On the bright side, financial industries continue to develop their security posture in light of developments in VAPT.

Mr. Tengkiat said that one of the main goals of the RCBC is to address vulnerabilities not only at the tail end but also during development.

鈥淲e are currently shifting our development approach to adopt more of the DevSecOps (development, security, and operations) approach.鈥�

鈥淔rom 2020 to 2024, PNB undoubtedly saw a significant improvement in its security processes,鈥� the PNB Office of the CISO/DPO said.

鈥淭he VAPT program helped in strengthening the Bank鈥檚 security architecture and played a key role in fostering a security-centric culture within the organization.鈥�

鈥淯nder the Financial Services Cyber Resilience Plan, BSP is considering updates to VAPT requirements, focusing on scope, deliverables, team qualifications, and methodology,鈥� said the BSP.

鈥淏SP is also benchmarking testing methodologies from other jurisdictions and will make policy improvements as needed.鈥�

鈥淪AY HELLO to a Worry-Free Life!鈥�

This is HelloMoney鈥檚 promise to provide Filipinos with secure, fast, and efficient access to integrated digital financial services, emphasizing its commitment to financial inclusion.

HelloMoney is the e-wallet mobile app or a prepaid banking account powered by Asia United Bank (AUB) where customers can operate a convenient and secure 24/7 mobile banking transactions provided with internet connections.

It was launched by AUB in 2019 to enable users to open an account without experiencing the problems encountered in a physical branch.

To improve HelloMoney鈥檚 e-wallet market share, the bank will venture on more innovations in the future such as offering microinsurance, digital savings solutions, in addition to further widening its global reach and acceptance network.

It will further enhance the e-wallet鈥檚 user experience and streamline its features.

To gain insights into HelloMoney鈥檚 plans and developments six years after its launch, 大象传媒 interviewed AUB President Manuel A. Gomez to discuss the e-wallet鈥檚 market offerings and future ventures in the Philippines.

As one of the e-wallets in the Philippines and backed by Asia United Bank, what advantages does HelloMoney have over other e-wallets in the country?

HelloMoney has a unique advantage in the Philippine e-wallet space because it鈥檚 backed by AUB. This means HelloMoney users can be confident their money and transactions are protected by bank-grade security and regulatory compliance. Being part of AUB鈥檚 ecosystem also allows HelloMoney to offer more integrated financial services to its users.

Other advantages of HelloMoney:

鈥� AUB pioneered the country鈥檚 first fully digital registration through National ID integration. This means there鈥檚 no need for a physical ID to open an account on HelloMoney because the user鈥檚 face already serves as their ID.

鈥� Lowest InstaPay fee of P8 and zero convenience fees for billers.

鈥� Partnership with Para帽aque Integrated Terminal Exchange to digitalize public transportation and modernize how Filipinos pay for their daily commute.

鈥� Digital partnership with Alipay+ made AUB the first Philippine bank with an e-wallet that can be used for cross-border mobile payments in 2022. This also brought HelloMoney closer to Filipinos in Japan, South Korea, Malaysia, Hong Kong SAR, and Singapore.

What are AUB and HelloMoney doing to reach unbanked and underserved Filipinos?

AUB is deeply committed to financial inclusion. Its strategy involves partnering with reputable institutions across the Philippines to reach the unbanked population. Through these collaborations, AUB is creating easier ways for Filipinos to access basic financial services, especially in areas where traditional banking might be limited.

One of these partnerships is with the Philippine Statistics Authority on the National ID integration in which AUB pioneered the country鈥檚 first fully digital registration. Even if the unbanked and underserved do not have a physical ID, they can open an account on HelloMoney and enjoy the benefits of digital banking just by having a digital National ID and having their biometrics done. Soon, they can also open an account in a physical branch of AUB just by looking at a camera.

What ongoing programs of AUB and HelloMoney do customers mostly use for their transactions?

It鈥檚 exciting to see how our customers are embracing digital transactions. We鈥檙e seeing significant growth in three main areas: InstaPay transfers, mobile load and gaming pin purchases, and bill payments. These services have become essential tools in our users鈥� daily lives.

AUB has partnered with Alipay+ to enable HelloMoney for cross-country transactions. How does the partnership help the users to get an efficient payment and other transactions experience?

Our partnership with Alipay+ has been transformative for our international capabilities. Our users can now make QR payments across multiple Asian countries including Japan, South Korea, Malaysia, Hong Kong SAR, and Singapore. This has really simplified cross-border transactions for our customers, whether they鈥檙e traveling, working, or studying abroad.

What consumer benefits arise from AUB鈥檚 partnership with Smart Communications, Inc.?

The collaboration with Smart Communications has been fantastic as it enabled AUB to expand its services. AUB has launched several successful campaigns offering special promos and HelloMoney credits for load purchases. It will continue to roll out more exciting campaigns through the end of the year to bring added value to HelloMoney users.

What security measures have you developed to prevent illicit online banking transactions? What are the preventive tools that are being used to protect its clients from fraud and anti-financial crime?

Security is a top priority at AUB. The bank recently integrated with the National ID鈥檚 e-Verify system, which gives it more confidence to verify customer identities. This is just one part of a comprehensive security framework to protect its customers.

What are your plans and innovations in the coming years? What products and services do you plan to offer in the market, and how would you differentiate these offerings from those provided by other e-wallets?

AUB has several exciting projects in the pipeline. Its focus is on creating more value within the HelloMoney app, making banking access even easier and more convenient to users.听 The bank is constantly innovating to meet customers鈥� evolving needs.

To continue growing HelloMoney鈥檚 e-wallet market share, the bank will embark on more innovations in the coming years such as offering microinsurance, digital savings solutions, in addition to further widening its global reach and acceptance network.

It is also introducing more enhancements in user experience and simplifying HelloMoney鈥檚 features. Ultimately, making banking and financial services more accessible, secure, and simple for Filipinos through HelloMoney should be as easy as saying 鈥渉ello.鈥�

What do you think are the biggest risks faced by e-wallets and what do you currently doing to eliminate these risks?

In the e-wallet industry, scams and fraud are certainly the biggest challenges. That鈥檚 why AUB is continuously enhancing its onboarding process and proper KYC (know your customer) is crucial. It has also made its fraud monitoring systems more robust to review transactions and protect users.

How much did the HelloMoney鈥檚 customer base have grown since it was launched in 2019? How about the total volume and value of transactions since the launch? Please provide year-on-year data.

AUB takes pride in HelloMoney鈥檚 growth trajectory. As of December 2024, its user base has reached 6.3 million, a 37% increase from 2023. Transaction count hit 51.8 million, up 33% from 2023, while transaction value has grown to P196.5 billion, a 34% increase. These numbers reflect the trust users place on HelloMoney and on AUB鈥檚 commitment to serving their financial needs.

To know more about AUB鈥檚 HelloMoney, visit . You may download the app via App Store (Apple), Google Play (Android), and App Gallery (Huawei).

These developments, analysts said, were likely to persist this quarter and throughout 2025.

In the fourth quarter, the Philippine Stock Exchange index (PSEi) 鈥� the barometer for the country鈥檚 stock market 鈥� closed at 6,528.79. This was lower by 10.2% from 7,272.65 in the July to September period last year.

1 of 4

A year earlier, the local bourse went up by 1.2% from 6,450.04.

Meanwhile, data from the Bankers Association of the Philippines showed the peso closed at P57.85 to the dollar in the October to December period, weakening by 3.2% and 4.5% from a quarter earlier and a year earlier, respectively.

Yields on government securities rose by 49.90 basis points (bps) on average quarter on quarter based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates published on the Philippine Dealing System鈥檚 website.

On an annual basis, yields also grew by 21.81 bps.

During the period, domestic markets were influenced primarily by the reduction of interest rates set by the BSP and economic policies of US President Donald J. Trump, analysts said.

Harumi Taguchi, principal economist at S&P Global Market Intelligence, said that market sentiment has been influenced by uncertainties over US economic policy and expectations for fewer and slower policy rate cuts by the US Federal Reserve in the last quarter of 2024 which is still likely to persist this year.

For Nicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co. (Metrobank), these projected economic policies set by Mr. Trump could have repercussions for global trade, global economic growth, and the direction of US Fed policy rates on the mind of investors.

鈥淭he new US administration is set to raise tariffs over the next four years. However, there remains a degree of uncertainty over the pace and magnitude of such tariffs, and whether other trading economies would retaliate by raising their own tariffs,鈥� HSBC ASEAN economist Aris D. Dacanay said in an e-mail.

He added that market players will monitor how protectionism will develop, considering the inflationary risks of tariffs affecting how monetary policy in the US will take effect.

Meanwhile, for Sun Life Investment Management and Trust Corp. economist Patrick M. Ella, optimism surrounding the new US government was a big driver during the period.

Additionally, he said that the Philippine peso weakened alongside other Asian currencies following the win of Mr. Trump in November.

鈥淔ixed income听markets were elevated as the prospect of slightly elevated domestic inflation due to the weather-related disruptions to food supply and the seasonal demand,鈥� he said in an e-mail.

He also added that the US Federal Reserve鈥檚 signaling a lowered rate cut this year helped keep both foreign and domestic interest rates higher.

Reinielle Matt M. Erece, economist at Oikonomia Advisory and Research, Inc. on the other hand, said that the BSP鈥檚 reduction of rates had a significant impact on the financial markets last quarter.

This suggests that further monetary policy easing measures are likely to happen.

However, he noted that uncertainties by Mr. Trump and his campaigns steered a great deal of uncertainty in our capital markets, causing foreign investors to sell and reposition themselves.

Due to this, the local bourse was not able to recover back to its October levels, he said, noting that the stock market rose to above 7,300 levels after the first rate cut of the BSP since the pandemic.

鈥淭his level of the PSEi was the highest since the first half of 2022 when the economy started to reopen,鈥� he said.

Looking ahead, he said that interest rates and other economic indicators will fuel market movements this year.

Additionally, he said that economic uncertainty by Mr. Trump鈥檚 aggressive raise of tariffs on China and Mexico are still the reason why the stock market has a relatively weaker performance.

Earlier this year, he imposed tariffs on US鈥� key trade partners namely Canada, China, and Mexico which may have consequences in global trade.

Based on a weekly report by Capital Economics published in February, Mr. Trump has abandoned the idea to impose a flat universal tariff of 10%-20% on all imports to the US and instead favors for a new reciprocal tariff that will be imposed on a country-by-country basis.

A reciprocal tariff is a tax or trade restriction that one country places on another in response to similar actions taken by that country and the idea for this is to create a balance in trade between nations.

If one country raises tariffs on goods from another, the affected country might respond by imposing its own tariffs on imports from the first country.

To explain, governments impose tariffs to increase revenues and protect local industries from foreign competition.

On the other hand, locally, the central bank slashed its key rate by 25 bps to 5.75% in their Monetary Board meeting last December.

Since its easing cycle in August, the BSP has reduced rate by a total of 75 bps.

CENTRAL BANK HOLDS OFF RATE CUTS
But at its first policy meeting this year, the BSP maintained its policy settings, surprising market expectations and at the same time signaled fewer rate cuts this year.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said that lower local interest rates would lead to decreased borrowing and financing costs.

This would then lead to an increase in the demand for loans and credit, and in turn, would result in more investments in new and expansion projects, improve trade, create more jobs, and boost business and economic activities.

For Mr. Taguchi, he also pointed out that policy rate cuts are likely to boost the economy and attract foreign direct investments in the country.

鈥淭his could limit further depreciation and support financial听markets,鈥� he added.

鈥淒espite the hawkish stance from the [US Fed], I still see BSP to continue its easing cycle to encourage consumption and investments in the country amid the disappointing GDP growth report for 2024,鈥� Mr. Erece said.

He added that while this may lead to the depreciation of the local unit, stable inflation coupled with weak growth will suffice to continue monetary policy easing.

鈥淭he BSP鈥檚 accommodative stance aims to ease financial conditions, supporting credit growth and economic activity while maintaining a target-consistent inflation outlook,鈥� the central bank said in an e-mail.

BSP also said that following these rate cuts, credit activity has increased, and demand for government securities has been strong, with interest rates generally trending downward.

Additionally, the BSP highlighted that it remains in easing mode to support growth as well as continue gradual rate reductions.

This, alongside monitoring the impact of previous policy changes on the economy. It added that the future decisions on monetary policy will be data dependent.

WHAT TO CONSIDER IN 2025
Analysts highlighted significant developments that market participants should consider this quarter, and for the entire year, what trends will persist and how the market should take caution

For Mr. Taguchi, rising protectionism as well as geopolitical tensions are what market players should consider in 2025.

For Metrobank鈥檚 Mr. Mapa, the influence of Mr. Trump as he sat office will affect global trade, inflation, and geopolitical concerns.

鈥淭he full new tariff schedules that the US will impose, and the conditions attached will be a key source of attention for the听market,鈥� Sun Life鈥檚 Mr. Ella said.

On the other hand, Mr. Ricafort said that increased government spending on infrastructure and election-related expenditures for the May 2025 midterm elections could benefit manufacturers involved in supply chains for various infrastructure projects in which they may also gain from the campaign spending by candidates and their donors or sponsors.

Interest rates, coupled with energy prices and world politics, are factors that should be taken into account this year, Mr. Erece said.

He further explained that as the central bank continues its easing cycle, companies will invest in growth expansion which in turn will increase their capital expenditure.

Additionally, energy prices are seen to stabilize as world oil prices are forecasted to be on a decline.

Moreover, world politics may cause speculation and hesitation in capital markets.

鈥淭he ongoing imposition of tariffs by the US and the retaliatory tariffs set by other countries such as Canada will cause inflation expectations to rise,鈥� Mr. Erece said.

Likewise, for the BSP, these external factors will impact domestic financial markets this year.

鈥淚n particular, markets will likely continue to be influenced by the protectionist trade policies and fiscal measures of the US, and the resulting policy uncertainty,鈥� BSP said.

These factors, it added could put pressure on foreign exchange, equities, and bond markets, potentially delaying the US Federal Reserve鈥檚 easing cycle and affecting global output and inflation.

Additionally, the BSP noted that macroeconomic factors by goods exports, inflows from overseas Filipino workers鈥� (OFW) remittances and foreign direct investments (FDIs), and the continued implementation of structural reforms are expected to support the markets.

Latest BSP data showed that cash remittances reached $3.38 billion in December bring the full year 2024 level to $34.49 billion.

Meanwhile, FDI net inflows fell $901 million in November, its lowest in two months or since the $368 million in September, latest data from BSP showed.

Additionally, latest government statistical data showed that trade deficit in December narrowed to $4.14 billion, the smallest trade gap in nine months since the $3.35 billion posted in March 2024.

Exports for December 2024 declined 2.2% to $5.66 billion while imports likewise, fell by 1.7% to $9.79 billion.

The aggressive move on tariffs by the US administration will discourage investors from investing in riskier markets and opt for safer investment as central banks brace for the potential rise in inflation, Mr. Erece cautioned.

LOOKING AHEAD IN 2025
Fewer rate cuts this year would mean attracting more investments in the stock market plus encouraging companies to increase capital expenditure to strengthen business operations, Mr. Erece said.

He explained that lower interest rates incentivize business and consumers to spend or invest their money in capital markets instead of putting them in lower yielding government bonds. Moreover, in the long term, this will also help boost activity in the stock market.

For Mr. Taguchi, though the country is somehow insulated from risks looming over global trade, it may still be vulnerable to the Fed repricing and the greenback鈥檚 strength.

鈥淭he Philippine economy, due to its ongoing infrastructure agenda, is operating in a current account deficit, making it susceptible to risks in foreign exchange volatility,鈥� he said.

Additionally, he noted that the US Federal Reserve puts a floor under how much the BSP can cut rates. If the BSP lowers rates more than the Fed, it could weaken the local unit.

This, in turn, will lead to inflation which is fueled by currency depreciation and will complicate BSP鈥檚 easing cycle.

鈥淪o, if inflation in the US turns out to be stickier due to tariffs, the BSP鈥檚 easing cycle might consequently be shallower, which, in turn, could limit the extent of how much Philippine equities and bonds could rally,鈥� he explained.

FIXED-INCOME MARKET
BSP: The central bank鈥檚 shift to a less restrictive monetary policy, driven by easing inflation, is expected to influence bond yields. The BSP鈥檚 forward guidance will also impact on the fixed-income market.

Mr. Taguchi: Local bond yields are likely to remain around current levels, as US bond yields are expected to continue affecting local bond yields.

Mr. Mapa: Domestic liquidity and subdued inflation could keep a lid on interest rates in the coming months although supply risk and the direction of global rates could also mean rates could still be pressured higher during bouts of increased supply or uncertainty.

Mr. Erece: Bond yields can see a slow decline as inflation expectations continue to stabilize within targets. Other similar investment instruments will see the same movement for this year.

Mr. Ricafort: Market risk could be managed if the bonds/fixed income securities are held until maturity, or at least to have that flexibility, if market conditions become less favorable, such as if bond yields go up or remain elevated during the investment horizon, with the investor enjoying the effective yields or coupon payments every quarter or year (depending on how often coupon payments are made) that are more predictable (avoiding the risk of losses by not selling when market yields become higher than the yield during the bond鈥檚 purchase).

EQUITIES MARKET
BSP: Factors such as the proposed reduction in stock transaction taxes under the Capital Markets Efficiency Promotion Act, improved credit outlook, and higher domestic consumption, could boost trading activity.

Mr. Ella: [It] is cheap and could remain so until a good news听story听[lifts] prices.

Mr. Erece: As interest rate goes down, the risk-free rate usually goes along with it. Along with the expectation of higher business activity this year, the market risk premium is expected to increase, making stocks a more attractive instrument due to their relatively higher expected returns.

Mr. Ricafort: 鈥� Better corporate sales and income reports of the largest local companies and mostly better economic data recently to support investment valuations鈥�. After no more large lockdowns since 2022, and no more lockdowns as a policy priority, going forward, thereby, improving sales or revenues, earnings or net income, employment or jobs, more business or economic opportunities; all of which would help support better investment valuations, though offset by still relatively higher prices and higher borrowing costs.

FOREIGN EXCHANGE MARKET
BSP: 鈥� Steady inflows from OFWs remittances, BPO revenues, tourism, and foreign direct investments are expected to support the peso. Additionally, ample gross international reserves will help cushion against global economic uncertainties and exchange rate volatility.

Mr. Taguchi: [We] expect the peso to remain above P58/US$ considering the likelihood of a policy rate cut by the BSP and the lack of change to the Fed鈥檚 policy rate.

Mr. Mapa: Taking its cue from the dollar and the direction of Fed policy.

Mr. Ella: [It] could trade sideways.

Mr. Erece: As the BSP is expected to deviate from the Fed鈥檚 movement, the peso is seen to depreciate slightly as the US [remains] in a relatively tighter interest rate environment. This will cause the exchange rate to hover around P58-P59 against the dollar.

Mr. Ricafort: Going forward, the performance of the US dollar/peso exchange rate would still be partly a function of intervention or defense as consistently seen for more than two years already amid the need to better manage inflation and inflation expectations to fulfill the price stability mandate that would also require stability in the peso exchange rate, which affects import prices/costs and overall inflation. 鈥� Abigail Marie P. Yraola

BANK STOCKS struggled in the fourth quarter of 2024 as rate cuts coupled with rising inflation and developments abroad affect profit margins, analysts said.

The Philippine Stock Exchange index (PSEi) declined by 10.2% in the last three months, a reversal from the 13.4% growth a quarter earlier.

However, year on year, the local bourse inched up by 1.2%.

The financials subindex, which includes the banks, fell by 6.1% in the October to December period. Year on year, the subindex rose by 24.1%.

During the period, 10 out of 15 listed banks fell on a quarterly basis. Bank of Commerce loed the decliners with a 23.3% drop, followed by Philippine Bank of Communications (-11.1%) and Bank of the Philippine Islands (BPI, -9.7%),

On an annual basis, 12 out of 15 banks posted growth in their share prices at the end of fourth quarter. China Banking Corp. (Chinabank) led with 105.8% year-on-year surge. It was followed by Asia United Bank Corp. (AUB, 88.1%) and Philippine National Bank (PNB, 49.7%).

Despite the unfavorable sentiment of the stock market for the period, aggregate net income of universal and commercial banks grew by 9.7% to P366.02 billion as of end-December from P333.76 billion in 2023, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Gross total loan portfolio of these big lenders rose by 10.5% to P14.20 trillion as of end-December from P12.85 trillion a year ago.

The big banks鈥� gross nonperforming loans (NPLs) ratio slightly inched up to 2.99% as of end-December from 2.96% in December 2023.

Meanwhile, the big banks鈥� net interest margin (NIM) 鈥� a ratio that measures banks鈥� efficiency in investing their funds by dividing annualized net interest income to average earning asset 鈥� rose to 4.04% in the fourth quarter from 3.84% recorded in the same period a year earlier.

Provision for credit losses by these big banks reached P101.15 billion, up by 29.5% from P79.10 billion in December 2023.

Ralph Jonathan B. Fausto, research associate at China Bank Securities Corp., said that macroeconomic factors affecting the market primarily influenced the stock performance of listed banks in the fourth quarter.

鈥淚nvestors digested the possible impact of potential changes to US policy on the economic and growth outlook,鈥� Mr. Fausto said in an e-mail.

He also pointed out that the US administration鈥檚 policy priorities, including the prospect of trade tariffs, led investors to anticipate a more cautious approach to policy easing by both the US Federal Reserve and the BSP.

鈥淔or banks, a more restrained path to policy easing and macro uncertainties could lead to tempered loan demand from businesses and consumers,鈥� he added.

Wendy B. Estacio-Cruz, head of research at Unicapital Securities, Inc., said that some listed banks recorded double-digit growth in their net income mainly due to high net interest margins as interest rates remain elevated.

鈥淚n terms of share price movement, majority of banks declined due to negative market sentiment. However, do note that most of the listed banks, especially the top banks, continue to show strong earnings growth and high Return on Equity (RoE),鈥� Maybank Securities, Inc. Research said in an e-mail.

Favorable macroeconomic and regulatory developments have supported bank earnings during the period with stabilizing inflation and interest rates lifting loan demand coupled with the reduction in reserve requirements supporting lending margins, Abigail Kathryn L. Chiw, first vice-president and head of research at BDO Securities Corp., said in an e-mail.

Maybank Securities also said that most banks during the quarter have the same trend share price movement.

鈥淔or the exception of Chinabank, note that it continues to do well in terms of loan growth, profitability and RoE. But what made CBC resilient versus other banks share pricewise is due to its high probability in being added in the PSE index,鈥� Maybank Securities said.

For Arielle Anne D. Santos, an equity analyst at Regina Capital Development Corp., some banks, like BPI and UBP, saw strong performances due to consumer loan growth, fee income, digital initiatives, and effective risk management strategies.

鈥淏PI benefited from consumer loans and fee income, while UBP gained from its acquisition of Citi鈥檚 retail business and its digital initiatives,鈥� Ms. Santos said.

Other reasons for banks that have reported their earnings result include expanding NIM and improving NPL ratios (as in the case for BPI) as well as achieving positive returns and expanding consumer loan portfolio during the quarter.

鈥淸The] strong performance was driven by substantial growth in noninterest income and a significant reduction in provisions, complementing solid expansion in core lending revenues,鈥� Mr. Fausto said.

The central bank slashed its key rate by 25 basis points (bps) to 5.75% in their Monetary Board meeting last December.听 Since its easing cycle in August, the BSP has reduced rate by a total of 75 bps.

However, during their first policy meeting this year, the BSP held rate cuts, surprising market expectations and at the same time signaled fewer rate cuts.

鈥淚n the near term, investors need to watch out for the movements of the BSP in terms of policy rate cuts and reserve requirement ratios (RRR) cuts,鈥� Maybank Securities said.

In September 2024, the central bank decided to reduce RRR by 250 bps to 7% from 9.5% for banks and nonbank financial institutions with quasi-banking functions which took effect on Oct. 25.

In February, the central bank announced they will cut RRR by 200 bps to 5% from 7% for universal and commercial banks (U/KBs) and nonbank financial institutions which will take effect on March 28.

The jumbo cut came after the central bank kept rates steady.

It also added that large banks may be negatively affected in terms of their NIMs with additional policy rate cuts but since the central bank held its rate cut in its recent policy meeting, banks can be expected to maintain high NIMs in the near term.

For Regina Capital鈥檚 Ms. Santos and BDO鈥檚 Ms. Chiw, it would be wise if the market will continue to monitor further BSP rate moves and impacts of inflation on loan quality and profit margins.

鈥淣PL trends, capital adequacy, and fintech-driven cost efficiencies will be key, additionally peso-dollar volatility remains a risk,鈥� Ms. Santos added.

Additionally, for Ms. Chiw, concerns right now are Trump policy uncertainties which are affecting financial markets with renewed interest rate and exchange rate volatility potentially hurting consumption and investment appetite.

鈥淩isks of reaccelerating inflation and interest rates remaining high and restrictive, could also have knock-on effects to the ability of borrowers to repay their debts,鈥� she said.

She cautioned that these risks may require banks to incur more loan loss provisions to buffer against the potential rise in loan delinquencies.

According to RCBC Securities, Inc., investors should keep an eye on the loan portfolio and growth, as well as whether NIMs continue to expand. 鈥淎 potential 200-basis-point increase could positively impact loan growth and NIM,鈥� RCBC noted.

Unicapital鈥檚 Ms. Estacio-Cruz remains optimistic about the banking sector鈥檚 prospects in 2025, anticipating that strong asset quality and improved loan growth will help offset the impact of rate cuts, thereby supporting RoE.

For Chinabank鈥檚 Mr. Fausto, the market will monitor changes to US policies and its potential impact on inflation and interest rates both locally and abroad.

鈥淎dditionally, full-year earnings reports of listed banks (including management teams鈥� guidance against the backdrop of the changing global and local macroeconomic landscape), prospective RRR cut and policy rate cuts from the BSP could serve as near-term catalysts,鈥� he said.

WHAT TO CONSIDER IN 2025 AND OUTLOOK
For Mr. Fausto, outlook remains supportive for the central bank to implement further rate cuts which in turn could help support loan growth prospects.

Additionally, he said that banks that have built up comfortable coverage levels are expected to remain relatively resilient even as NIM compression may be relatively subdued.

鈥淭his comes as risks of a more tempered pace of loan growth could be partially offset by a more moderate decline in lending margins amid prospects of less policy rate cuts,鈥� he said.

Ms. Estacio-Cruz said that NIMs are expected to remain stable as the downward repricing of loans should be partly offset by faster credit growth, driven by consumer loans.

鈥淲e see net interest margins stable for this year as banks manage to lower cost of funds while keeping asset yields steady,鈥� Ms. Estacio-Cruz added.

Meanwhile, while these rate cuts may spur loan growth, rising inflation could put a strain to funding costs and repayment capacity, Ms. Santos of听 Regina听 Capital said.

She added that profit margins may tighten, but diversified banks, with strong liquidity and operational efficiency, will fare better.

鈥淟oan growth may be modest, with margin pressures ongoing. Fee income from digital services should help offset declines. Big banks like BDO and BPI are expected to outperform due to scale, while UBP benefits from digital expansion,鈥� she noted.

Charmaine Co, a research analyst at COL Financial Group, Inc., also projected continued loan growth momentum for banks, supported by favorable conditions such as monetary easing, stable economic growth, and subdued inflation.

鈥淲e also expect NIM to come under pressure from rate cuts. NIM compression may be on the modest side as the impact of rate cuts are moderated by balance sheet adjustments and tailwinds from the reduction in the banks鈥� reserve requirement ratio,鈥� Ms. Co said in an e-mail.

For Maybank Securities, the rate cuts should put downward pressure on NIMs but the central bank鈥檚 RRR cut partially offset the potential impact on NIMs since an RRR cut is generally favorable for banks鈥� margins.

Additionally, they said that banks continue to expand their consumer loan portfolios, which typically have higher margins and yields compared to institutional loans.

鈥淭he banking sector is our top sector pick for the first half of 2025. With less rate cuts, we expect the banks to continue to enjoy high NIMs, high RoEs and strong profitability,鈥� Maybank Securities said.

Moreover, Maybank Securities noted that with gross domestic product growth projected to be close to 6%, this could imply that industry loan growth to be around 10%-12% level.

Likewise, for RCBC Securities, banks will continue to perform strongly, backed by sustained double-digit loan growth due to the RRR cut.

For Ms. Chiw, inflation settling within the 2%-4% target of the central bank for the year will sustain further monetary policy easing.

鈥淲e believe there is room for two interest rate cuts, especially after the slower-than-expected 2.1% inflation print for February, which should help sustain loan demand,鈥� she said.

However, she noted that the detrimental effect of rate cuts to profit margins, will be offset by favorable impact of RRR reductions in which banks can expect NIMs to remain stable.

鈥淭here will also be opportunities for banks to realize trading gains from their bond portfolios as interest rates shift lower,鈥� she added.

In December, inflation accelerated to 2.9% which brought the full-year 2024 headline inflation to 3.2%, still settling within the BSP鈥檚 forecast.

Meanwhile, latest inflation data from the government鈥檚 statistics agency showed that in February, inflation eased to 2.1%, its slowest pace in five months or since the 1.9% posted in September 2024.

For the first two months of the year, inflation averaged 2.5%, still within the BSP target.