By Katherine K. Chan, Reporter

THE PHILIPPINE BANKING sector’s lending activity expanded at its slowest pace in nearly two years at the end of 2025 as loans for both consumers and business activities eased as a corruption scandal dampened sentiment, the Bangko Sentral ng Pilipinas (BSP) reported.

Based on preliminary BSP data released late on Monday, the total outstanding loans of universal and commercial banks, net of reverse repurchase agreements, grew by 9.2% year on year at end-December to P14.349 trillion from P13.138 trillion.

This was the slowest loan growth seen in 22 months or since 8.6% in February 2024.

It was also the first time since April 2024 that bank lending grew at a single-digit pace.

Month on month, the pace of lending eased from the 10.3% growth posted at end-November.

On a seasonally adjusted basis, bank lending fell by 2% month on month.

Outstanding loans to residents stood at P14.046 trillion by yearend, up by 9.7% year on year from P12.808 trillion. This was slower than the 10.7% expansion seen in November.

Lending for residents’ production activities accounted for the bulk or 84.4% of banks’ outstanding loans at the end of December. The rest were consumer loans (13.5%) and loans to nonresidents (2.1%).

BSP data showed that loans for production activities grew by 8% annually to P12.114 trillion last year from P11.216 trillion in 2024. This eased from the 9% growth seen in the 11 months to November.

This was driven by the 26.8% jump in lending for the electricity, gas, steam, and air-conditioning supply sector. Loans extended for wholesale and retail trade, repair of motor vehicles and motorcycles also grew by 10.8%, followed by real estate activities (8.3%) and financial and insurance activities (3.9%).

Meanwhile, consumer loans to residents reached P1.932 trillion at end-December, up 21.4% from P1.592 trillion a year ago. However, consumer loan growth eased from the 22.9% at end-November.

Credit card loans jumped by 27.7% to P1.193 trillion at end-December, softening from the 29.5% growth the prior month.

Loans for motor vehicles also rose by 15.5% to P524.86 billion, slower than the 16.3% growth as of November.

Loans for general-purpose salaries rose by 5.6% to P166.807 billion at end-December, easing from 6.4% at end-November.

On the other hand, lending to nonresidents contracted by 8.1% to P303.208 billion, marking a steeper decline from the -4.5% logged at end-November. These include loans disbursed by big banks’ foreign currency deposit units.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said the slower growth in bank lending and domestic liquidity may have stemmed from infrastructure underspending that dampened activity in key sectors, such as construction.

“Slower bank loans growth and M3 (domestic liquidity) growth are largely consistent with the economic slowdown in the latter part of 2025 largely due to government underspending especially on infrastructure that reduced sales, earnings, profits, employment and other business activities,” he said via Viber.

Union Bank of the Philippines (UnionBank) Chief Economist Ruben Carlo O. Asuncion also attributed banks’ subdued loan growth to the country’s recent economic slowdown.

“Business loans softened as manufacturing, construction, and trade‑related sectors remained weighed down by weak demand, while consumer loan growth also eased as both households and banks turned more cautious,” he said in a Viber message.

Weak sentiment amid the graft scandal also prompted investors to adopt a cautious approach “thereby reducing the demand for loans amid the decline in investments that are financed by loans,” Mr. Ricafort added.

Multiple public officials and private contractors had faced corruption allegations linked to government flood control projects, which sparked public outrage and later weighed on consumer and business confidence.

Loan demand could improve this year with the help of the government’s spending catch-up plan and the central bank’s further easing, Mr. Ricafort noted.

“Lower interest rates by the BSP and by the Fed, as well as possible further reduction in large banks’ RRR (reserve requirement ratio) that also increase further banks’ loanable or investible funds would further reduce borrowing costs and that would increase demand and growth in bank loans,” he said.

The benchmark interest rate currently stands at an over three-year low of 4.5%. Since August 2024, the Monetary Board has so far lowered borrowing costs by a cumulative 200 basis points (bps).

BSP Governor Eli M. Remolona, Jr. earlier said that they could ease for a sixth straight meeting on Feb. 19 if the fourth-quarter growth slowdown proves to be demand-driven.

He also left the door open for a potential RRR cut, though noted that they are still looking for the right timing to do so.

“BSP’s rate cuts continue to support credit conditions, but the impact is being tempered by soft domestic demand and tighter risk management by banks,” UnionBank’s Mr. Asuncion said. “Monetary easing is helping prevent a sharper deceleration, though it cannot fully offset the broader economic slowdown.”

He also noted that bank lending may get some lift from the loan demand in the energy sector, particularly for renewable energy projects.

LIQUIDITY GROWTH SLOWSMeanwhile, separate BSP data showed that liquidity growth fell to its weakest in four months at 7% as of December. This was also slower than the 7.6% increase in the previous month.

M3 — a measure of the amount of money in the economy that includes currencies in circulation, bank deposits, and other financial assets easily convertible to cash — stood at P20.108 trillion by yearend.

“After adjusting for seasonal fluctuations, M3 remained broadly stable from November,” the central bank said in a statement.

Domestic claims, which include claims from private and government entities, climbed by 10.1% year on year to P22.588 trillion, slowing from the 10.6% growth as of November.

This came as subdued bank lending to nonfinancial private corporations, and households dragged growth of claims on the private sector down to 10.1% from 11.1% a month ago. Private sector claims reached P14.512 trillion during the period.

Meanwhile, the BSP said higher borrowings lifted net claims on the central government by 10.8% to P6.135 trillion. However, this was slower than the 11% growth seen at end-November.

Central bank data also showed that net foreign assets (NFA) in peso terms climbed by 6.1% as of December from 4.4% a month prior.

Broken down, the BSP’s NFAs edged up by 5.3%, picking up from 1.9% in the previous month.

On the other hand, banks’ NFAs went up by 13% annually driven by larger holdings of foreign currency-denominated debt securities. However, this marked a sharp slowdown from the 26.9% pace as of November.

NFAs reflect the difference between depository corporations’ claims and liabilities to nonresidents.

“The BSP monitors bank loans because they are a key transmission channel of monetary policy,” the central bank said. “Looking ahead, the BSP will ensure that domestic liquidity and bank lending conditions remain consistent with its price and financial stability mandates.”