Philippine banks broadly expect lending standards and loan demand to hold steady in the third quarter of 2026, reflecting the banking sector's continued resilience amid global geopolitical uncertainty, according to the Bangko Sentral ng Pilipinas (BSP).

Results from the BSP's latest Senior Bank Loan Officers' Survey (SLOS), released on Thursday, show that most respondent banks anticipate maintaining their current credit standards for both business and household loans during the July-to-September period. The quarterly survey is one of the key instruments the BSP uses to gauge forward-looking credit conditions, which serve as a primary transmission channel for monetary policy in the Philippines.

"Most Philippine banks expect to maintain their lending standards in Q3 2026, indicating the banking system's stability and capacity to support the economy through credit despite persistent geopolitical uncertainty," the central bank said in a statement.

Under the survey's modal approach, which asks banks for a categorical response on whether they will tighten, ease, or maintain credit standards, 75.5% of respondents expect stable standards for business loans, up from 71.7% in the previous quarter. For household loans, 80% anticipate unchanged standards, an increase from 71.4% in the prior quarter.

Fewer banks expect tighter credit standards compared with the second quarter. The share anticipating tighter standards for business loans dropped to 18.9% from 28.3%, while those expecting tighter household loan standards declined to 20% from 25.7%.

"For those expecting credit standards to tighten, survey responses suggest a moderation in the tightening bias among banks for loans to both enterprises and households," the BSP said.

On the easing side, 5.7% of banks foresee looser lending standards for businesses, compared with 0% in the prior quarter. No banks expect credit standards to loosen for households, down from 2.9% a quarter earlier.

Lending standards encompass the criteria banks use when approving loans, including interest rates, loan size, collateral requirements, loan conditions, and repayment terms.

The SLOS also employs a diffusion index (DI) approach, which measures the net difference between respondents' answers. Under this method, a net 13.2% of banks expect to tighten standards for business loans, significantly lower than the 28.3% recorded in the second quarter. For household loans, a net 20% anticipate tighter standards, down slightly from 22.9% in the April-to-June period.

"The corresponding diffusion index for both businesses and households remained positive, indicating a net tightening bias," the BSP said. "Respondents cited a less favorable or more uncertain economic outlook, reduced risk tolerance, and a deteriorating borrower profile as factors that could lead them to tighten credit standards."

Loan Demand

Banks are generally more optimistic about loan demand in the third quarter. Under the modal approach, 30.2% of respondents expect higher demand for business loans, up from 17% in the previous quarter. Meanwhile, 64.2% project steady demand, down from 73.6%, and 5.7% foresee weaker demand, compared with 9.4% previously.

"The expected increase in enterprise loan demand may be attributed to higher customer inventory financing needs, higher accounts receivable financing needs, and an improved customer economic outlook," the central bank said.

For household loans, 57.1% of banks expect demand to remain stable, lower than the 74.3% recorded in the previous survey. The share of banks anticipating increased household loan demand rose to 31.4%, more than doubling from 11.4% in the prior quarter. Approximately 11.4% expect demand to weaken, down from 14.3% in the second quarter.

"Banks expecting higher household loan demand cited stronger household consumption, lack of other sources of funds, higher housing investment, and more attractive bank financing terms as the key drivers," the BSP noted.

Under the diffusion index, a net 24.5% of lenders anticipate higher demand for enterprise loans, while a net 20% see the same for household loans. These figures represent significant increases from 7.5% and -2.9%, respectively, in the second quarter.

Survey Methodology

For the third-quarter SLOS, the BSP surveyed 60 banks between June 3 and July 7, with 56 institutions responding, yielding a response rate of 93.3%. Respondents included senior loan officers from universal and commercial banks, thrift banks, and rural banks across the country.

Earlier this year, the central bank assessed that geopolitical shocks stemming from the ongoing Middle East war have had minimal direct impact on the domestic banking system. However, it cautioned that tighter financial conditions, rising borrowing costs, and uncertainties related to the conflict could temper Philippine banks' lending growth over the year.

The latest BSP data indicated that big banks' lending grew by 12.1% to P14.989 trillion in May, up from P13.37 trillion a year earlier and accelerating from the 11.4% growth recorded in April. This represented the sector's fastest loan expansion in 15 months, dating back to the 12.2% growth posted in February 2025. Bank credit growth is closely tracked in the Philippines as a barometer of real-economic momentum, as the country's financial system remains heavily bank-dominated compared with economies that have larger corporate bond or equity markets.

— Katherine K. Chan