T&S View: In Philippine household credit, check quality before chasing the demand rebound

Facts

This article is our opinion. It rests on the following facts.

Demand: BSP's consumer confidence index for July–September was −29.8% (up from −42.0% in Q2 2026), with an October–December outlook of −0.8% (Inquirer).

Quality: July unemployment was 6.0% (up from 5.3% in July 2025, PSA). The banks' July consumer-loan NPL ratio was 5.49% (up from 5.44% in June), cards 5.34% (up from 5.28% in June), auto 5.51% (up from 5.49% in June), with NPL coverage of 92.45% (BSP data via the Inquirer).

Growth: bank consumer loan growth was 17.1% in July (down from 17.8% in June; eleventh consecutive monthly slowdown) (BSP via Philstar).

Analysis

We think demand and quality are moving in opposite directions. When growth slows, arrears on loans made in the high-growth period tend to surface as higher ratios (a denominator effect), and we believe the current rise in NPL ratios partly reflects the quality of past lending. We therefore see three priorities. First, use delinquency by origination month to identify the periods and underwriting criteria that generated losses. Second, even as applications rise, adjust approval rates gradually on the basis of verified income. Third, standardise early-arrears contact and restructuring.

Implications

Counterpoints and uncertainties

Month-on-month NPL increases were small (0.02–0.06 pp), so it is too early to call a trend. Rising unemployment came with higher participation (63.6%), and underemployment improved to 12.9%. If household repayment capacity recovers faster than we expect, cautious underwriting would mean lost business. Whether a denominator effect is the main driver cannot be verified externally without origination-month data.