PHILIPPINE banks are expected to face a more challenging operating environment in 2026 as slower economic growth, weaker loan demand and falling interest rates put pressure on profitability, prompting Maybank Research to downgrade its sector outlook to neutral from positive.
In its report titled “Year Ahead 2026,” Maybank said the strong performance enjoyed by banks in recent years is likely to fade as it becomes harder to keep net interest margins elevated while loan growth slows.
“The outlook for economic growth is more subdued in light of weaker government construction-related spending,” Maybank said.
“The middle market private segment also has a more subdued outlook for expansion. Meanwhile, the bright spots we continue to see are sustained large corporate expansion and consumer lending,” it added.
The research firm expects overall industry loan growth to ease to around 8.0 percent in 2026, down from about 11 percent in 2025, largely reflecting weaker economic activity tied to reduced government and private construction spending.
“The downward revision is primarily due to contraction in infrastructure spending,” Maybank said.
It explained that historically, bank loan growth has tracked at roughly 1.5 to two times gross domestic product (GDP) growth, suggesting that a softer macroeconomic backdrop will translate into slower credit expansion.
“Consumer spending should see sustained growth that could spur higher consumer loans,” it said. “Note that the government has further increased personnel spending and reallocated its infrastructure budget toward more social services and dole outs.”
Moreover, the Bangko Sentral ng Pilipinas’ (BSP) easing cycle is expected to continue to weigh on bank margins.
The BSP has already cut policy rates by a cumulative 200 basis points since mid-2024, bringing the benchmark rate to 4.5 percent. Maybank expects 50 basis points in 2026, taking total rate cuts to around 250 basis points.
While bank net interest margins (NIMs) have remained elevated in 2025, supported by a shift toward higher-yielding consumer loans and earlier reductions in reserve requirement ratios, Maybank warned that this strategy is nearing its limits.
“We believe that growing the consumer book to maintain NIMs is already reaching its limits without sacrificing higher provisions and asset quality,” it said. “Hence, the majority of banks will face the dilemma of whether to accept slower growth or embrace consumer loan and the provisions that come with them.”
It added that expanding consumer lending further could come at the cost of higher provisions and potential asset quality risks, especially in an environment of slowing growth and tighter government spending.
“Typically, this uncertainty warrants a more prudent approach due to higher credit costs,” it said.
The report also said that loan demand weakness is most visible in the middle-market segment, where firms are hesitant to expand.
Large corporations continue to operate largely on a business-as-usual basis, while consumer lending remains a relative bright spot, supported by steady household consumption and still-low household debt as a share of GDP compared with regional peers.
However, Maybank cautioned that aggressive growth in consumer loans, particularly into lower-income segments, could eventually lead to higher nonperforming loans (NPLs).
“Although we have yet to see significant NPL formation in the segment, this might start to be a concern in regard to tapping lower income segments to pursue growth,” it said.
“This could lead to significant NPL formation and pressure profitability lower amid a slower economy,” it added.
Provisions have already risen sharply at some banks, with the research firm pointing out that provisioning expenses at certain lenders doubled in 2025 as they sought to maintain high coverage ratios.
Within the sector, Maybank named BDO Unibank as its top pick, citing its potential to deliver above-industry loan growth while keeping nonperforming loans in check.
It set a target price of P197 per BDO share, followed by Bank of the Philippine Islands with a target price of P162 per share, while maintaining buy ratings on major lenders despite the sector-wide downgrade.
