THE PHILIPPINES is unlikely to be impacted by US President Donald J. Trump’s tariff plans, S&P Global Ratings said, but warned this could change if service exports are also targeted.

“Thankfully for the Philippines, the export component of the economy is not large. The Philippines’ economy is mostly domestic and driven by consumption as well. So, largely, any impact will not be big,” S&P Global Ratings Director and Lead Analyst Ivan Tan said in a webinar on Thursday.

Markets are bracing for the potential impact of Mr. Trump’s trade policies, such as reciprocal tariffs on all countries that tax US imports.

“One caveat is that the export services from the Philippines are fairly large,” Mr. Tan said.

Earlier data from the central bank showed the Philippines booked $37.4 billion worth of services exports in the first nine months, up 6.25% from a year earlier.

In 2024, exports of services jumped by 8.3%, data from the local statistics authority showed. It also accounted for 13% of gross domestic product (GDP).

Under the Philippine Development Plan, service exports are projected to hit $48.15 billion this year.

“Now, the Trump tariff policy is mostly on goods. He hasn’t targeted services yet,” Mr. Tan said.

“So, that’s not our base case, but should he turn his attention to the services industry, then that is where we need to relook at and think about the potential impact on the economy and, of course, the flow-on impact on the banks.”

Mr. Tan noted the country’s robust remittances from overseas Filipino workers as well as service exports.

“Because of a good educational system and English literacy in the Philippines, there’s a lot of service workers working in the US, that includes doctors and nurses. And remittances are a meaningful contribution to the GDP.”

In 2024, the US was the top source of cash remittances. It accounted for almost half or 40.6% of the total remittance flows.

RISKS TO BANKS
Meanwhile, S&P Global said the Philippine banking system has maintained good capital buffers, though it flagged risks to the sector, citing the shift to consumer loans.

“Generally, the capitalization and the profit has been quite good, like most Southeast Asia banks in the investment-grade space,” Mr. Tan said.

“The only incremental risk we are seeing is that banks are pivoting away from corporate loans, which are low-yielding but very safe, towards the higher-risk and higher-yielding consumer loans.”

Latest data showed bank lending jumped by 12.2% year on year to P13.1 trillion at end-December. This was the fastest lending growth in two years.

“Corporate loans will be about 3% of nonperforming loans (NPL). Consumer loans, even though the margins are very high, the nonperforming loans are twice as high. The average consumer loans will be about 6% NPL or more.”

“There is a little bit of risk on at this point, so we are looking closely at that. But just to be clear, the majority of the bank books are still in the safe, low-yielding corporate loans,” Mr. Tan said.

“It’s going to take some time before consumer loans become a larger, more meaningful portion of their balance sheet.”

The Philippine banking industry’s gross NPL ratio slid to 3.27% in December from 3.54% in November. This was also the lowest NPL ratio since the 3.24% posted in December 2023. — Luisa Maria Jacinta C. Jocson