With the political circus that grabbed our attention in past weeks, and the severe 7.8-magnitude earthquake that jolted Southern Mindanao on June 8, it is understandable that not too many people noticed the 2025 Financial Stability Report or FSR released by the Bangko Sentral ng Pilipinas (BSP).

Prepared with four other regulators under the Financial Stability Coordination Council (FSCC), the FSR opens with a reassuring line from Governor Eli Remolona Jr.: the economy and financial system “remain resilient.” Banks are well-capitalized, inflation was benign, and interest rates were relatively stable.

All of that is true, at least in 2025. But needless to say, many things have happened last year, and the FSR sheds light on the emergence of oft-overlooked risks.

Let’s start with the macro picture. The economy grew 4.4% in 2025, significantly below the government’s target, and it was dragged down by a 2.1% contraction in gross capital formation—the report’s polite term for investment drying up.

The BSP responded by cutting its policy rate by a cumulative 125 basis points to 4.5%. Any macro textbook will tell you that cheaper money props up growth. But it also makes borrowing more attractive. That is the tension running through the entire report: the same low rates keeping the economy afloat are quietly inflating the risks in the financial system.

Where leverage is building

The report names its top worry plainly: rising debt in households and firms.

On the household side, the fastest-growing borrowing is the riskiest kind: unsecured consumer credit, mostly credit card debt. These loans are growing faster than incomes.

For now, most borrowers are still paying on time. But “for now” is the operative phrase. Unsecured debt is the first thing that sours when jobs disappear or inflation spikes, like what’s happening of late.

Interestingly, the FSR devotes a lot of time to discuss the corporate side of things. It says that loans from universal and commercial banks to private corporations now total roughly P7.6 trillion, more than a quarter of GDP. More importantly, a large and concentrated share of that flows to the conglomerates that dominate Philippine business, the same handful of family-controlled groups that own slices of property, power, retail, and banking all at once.

The FSR devotes an unusually candid section to what it calls “the corporate web.” Big business in the Philippines, it observes, “rarely comes in singles.” Large groups sprawl across many sectors, stitched together by common owners and dense financial links, loans, guarantees, cross-shareholdings, and financed mainly by banks.

The danger is that trouble in one affiliate can spread quietly through intra-group lending before erupting noisily into the banking system.

The report walks through Philippine history to bolster this point. In the early 1980s, the collapse of a large manufacturing group with unsecured obligations helped trigger bank runs (this is the famous “Dewey Dee Scandal”). Years later, a property-and-finance group’s high-yield deposit schemes and fictitious loans pushed several small banks under. More recently, a major shipbuilder’s missed payments hit a cluster of lenders at once.

Each crisis began in the non-financial sector and ended up testing the banks. That the BSP is openly invoking these episodes tells you it takes the concentration risk seriously.

What the regulators plan to do

To its credit, the FSCC does not stop at describing the problem. It lays out a to-do list.

For instance, it aims to operationalize a “countercyclical capital buffer” or CCyB, a releasable cushion that banks build up when lending is hot, and draw down when the economy turns the other way around.

The FSCC also wants to map the conglomerates group by group and share that data across agencies. On top of that, it wants to close the data gaps on non-bank financial institutions, whose links to banks regulators admit they cannot yet see clearly. Finally, the FSCC wants to finish an inter-agency crisis playbook that has been a work in progress since 2022.

Every one of these is described as something the FSCC plans to do, not something it has fully done already. While good to hear, these plans and buffers are yet useless if not deployed fully before the next crisis turns the corner.

In addition, the BSP has rightly identified that the Philippines’ biggest financial vulnerability is the very concentration of economic power that defines the economy: a few conglomerates who are heavily indebted to a banking system that lends heavily to them.

But diagnosing that is the easy part. Acting on it is a much harder task. There’s so much more to the structure of conglomerates that we don’t yet understand, let alone the risks they pose to the financial system.

The BSP knows where the cracks in the financial system are, but these cracks need to be sealed before the next big financial earthquake comes.

As brutally illustrated by the recent Mindanao earthquake—apparently the country’s strongest next to the 1990 Luzon earthquake—a quake’s damage is as much a function of nature’s wrath as people’s unpreparedness for it. You do not retrofit a building during the shaking; you do it while the ground is still.

Much the same goes for financial earthquakes: more than just reading the warning signs, the trick is to build sturdy foundations before things are too late. – Rappler.com

Jan Carlo “JC” Punongbayan, PhD is an associate professor at the University of the Philippines School of Economics (UPSE). His professional experience includes the Securities and Exchange Commission, the World Bank Office in Manila, the Far Eastern University Public Policy Center, and the National Economic and Development Authority. JC writes a weekly economics column for Rappler.com. He is also co-founder of UsapangEcon.com and co-host of Usapang Econ Podcast.

His first book, False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them, was published by Ateneo de Manila University Press in February 2023. His second book, Twin Plagues: How Duterte and Covid-19 Wrecked the Philippine Economy, will be published by Penguin Random House SEA in June 2026.  Follow him on Instagram (@jcpunongbayan).

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