The resources of the Philippine financial system climbed by nearly 10% year on year as of end-July, underpinned by sustained growth in assets, though they slipped from the record level logged the previous month, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

The combined resources of banks and nonbank financial institutions (NBFIs) stood at P38.094 trillion in July, up 9.76% from P34.708 trillion a year earlier. The total, however, eased by 0.56% from the record-high P38.309 trillion held by the industry in June.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the sustained annual expansion came as strong lending activity continued to support the industry's asset growth.

“The year-on-year growth of nearly 10% as of July 2026 is definitely much better than GDP (gross domestic product) growth, largely accounted for by banks' total assets or resources growth amid banks' loan growth (holding) consistently around 10%,” he said in a Viber message.

The Philippine banking industry recorded P30.716 trillion in total assets as of July, an increase of 10.72% from the P27.742 trillion posted a year prior. Bank lending likewise picked up to a two-month high in the same period, with universal and commercial banks' total outstanding loans, net of reverse repurchase agreements, up 10.4% year on year to P14.98 trillion at end-July from P13.574 trillion.

Mr. Ricafort said deposits also supported the financial system's resources.

“(This is) also partly attributed to banks' deposits at high single-digit levels amid the doubling of PDIC (Philippine Deposit Insurance Corp.) insurance coverage to P1 million per depositor per bank that improved confidence by the depositing public, thereby also supporting more funds available for bank loans,” he said.

The latest BSP data showed deposits in domestic banks reached a combined value of P22.395 trillion at end-June, rising 8.34% from P20.671 trillion in the same period last year.

Meanwhile, Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said the month-on-month decline does not reflect a weakening financial system and was likely just a blip.

“The slight decline in total financial system resources in July was likely driven by normal balance sheet adjustments among large banks, including slower deposit growth (as people use their balances to support their businesses than borrow), loan repayments, and changes in investment holdings,” he said in a Viber message. “It appears more of a temporary correction than a sign of weakness.”

The financial system's resources cover the funds and assets of banks and NBFIs — such as deposits, capital, and bonds or debt securities — but exclude those of the central bank. That mix of deposits, capital, and debt securities forms the pool from which banks and other lenders fund loans and investments, making the gauge a broad read on the financing capacity behind economic activity.

Preliminary BSP data showed the banking sector's resources jumped 10.84% to P31.702 trillion at end-July from P28.601 trillion a year earlier. Month on month, however, resources held by banks slipped 0.93% from P31.999 trillion.

Universal and commercial banks held the bulk of this total, with P29.349 trillion at end-July, up 10.07% year on year from P26.664 trillion. Thrift banks' resources likewise rose 10.56% to P1.516 trillion from P1.371 trillion a year ago. Rural and cooperative banks held P623.9 billion, 46.3% higher than the P424.9 billion they held in the same period of 2025 — the second-fastest expansion among the bank categories. Digital banks, the smallest banking segment by resources, posted the fastest growth, with resources surging 50.74% to P.6 billion from P141.7 billion a year earlier.

On the nonbank side, the latest available data from the central bank showed NBFIs held P6.392 trillion worth of resources as of end-March, up 4.66% from P6.107 trillion a year prior. The figure was also 0.86% higher than the P6.337 trillion logged as of end-December 2025.

NBFIs include investment houses, finance companies, security dealers, pawnshops and lending companies, nonstock savings and loan associations, credit card companies, private insurance firms, and authorized agent banks of foreign exchange corporations. State-run institutions such as the Philippine Guarantee Corp., Small Business Corp., Social Security System, and Government Service Insurance System are also considered nonbank financial firms.

For Mr. Ravelas, the financial system's total resources holding above P38 trillion indicates that the banking sector remains “fundamentally strong and well-supported by continued economic activity.”

Mr. Ricafort, however, said resources growth might ease in the coming months as rising borrowing costs weigh on banks' balance sheets.

“For the coming months, higher US, global, and local interest rates, amid higher inflation due to higher wages and risk of a Super El Niño drought up to early 2027 could slow down growth in the total resources of the financial system,” he said.

The BSP has been in a tightening cycle since April, raising its key policy rate by a total of 75 basis points so far to 5%. The market expects further hikes, with only two Monetary Board meetings left this year, scheduled for Oct. 22 and Dec. 17 — the settings that will shape the borrowing costs Mr. Ricafort expects to weigh on banks' balance sheets in the months ahead. BSP Governor Eli M. Remolona, Jr. has stayed hawkish, saying the central bank is prepared to act as needed to bring inflation closer to its 3% target.

Inflation averaged 5.2% as of August. The central bank sees inflation averaging 6.1% this year, with the headline figure likely to peak next quarter due to potential price pressures from a strong El Niño event, wage hikes, and elevated global oil prices amid a protracted Middle East war.

Originally reported by Katherine K. Chan for Bworldonline.