Moody's warns of rising risks as banks expand retail lending

Philippine banks are expected to benefit from the rapid growth in retail lending, but Moody's Ratings has cautioned that this expansion also brings elevated asset quality risks in the short-term, particularly due to untested borrowers and rising levels of unsecured consumer debt.

- By KEISHA TA-ASAN

In a report, Moody's said retail loans in the Philippines such as credit cards and personal loans have grown significantly faster than non-retail loans since 2022.

Retail lending accounted for 21 percent of total banking system loans as of end-2024 and is projected to climb to 25 percent over the next three years, up from just 18 percent in 2021.

"A large proportion of retail loans is untested through economic cycles and some borrowers with higher indebtedness could struggle in an unexpected economic downturn. Therefore, the strong retail loan growth in recent years has raised asset risks for Philippine banks," the credit watcher said.

Moody's said several of the new borrowers entering the retail lending market lack established credit histories, making it harder for banks to assess their creditworthiness. With the country's credit bureau infrastructure still developing, the risk of default remains high.