The Financial Stability Coordination Council (FSCC) has flagged the ongoing Middle East conflict, rising household debt, and vulnerabilities in corporate debt as key risks facing the Philippine financial system, although regulators said the banking sector remains resilient.

The FSCC is composed of the Bangko Sentral ng Pilipinas (BSP), Department of Finance (DOF), Securities and Exchange Commission (SEC), Insurance Commission (IC), and Philippine Deposit Insurance Corp. (PDIC). It serves as the government’s inter-agency body tasked with safeguarding financial system stability by monitoring systemic risks, coordinating regulators, developing macroprudential policies, improving crisis preparedness, and preventing disruptions that could threaten banks, markets, and the broader economy.

During its quarterly meeting held on 20 May at the BSP head office in Manila, the council warned that a prolonged war in the Middle East could push oil prices higher, weaken market sentiment, tighten financial conditions, and slow both global and domestic growth.

“Geopolitical risks remain a key source of uncertainty. We are watching global developments closely to spot and address potential systemic risks,” said BSP Governor and FSCC Chairman Eli M. Remolona Jr.

The council also flagged exposures to energy- and interest rate-sensitive sectors as areas requiring close monitoring, warning that higher energy costs and tighter financing conditions could increase debt servicing burdens and compress corporate margins.

The FSCC said these pressures could eventually affect bank asset quality, noting that rising bond yields may lead to valuation losses on banks’ securities holdings and could weaken capital buffers if market pressures persist.

“Nonetheless, the financial system remains on solid footing. Banks have adequate capital and liquidity buffers to absorb shocks and keep lending to households and firms,” Remolona added.

On household debt, the council said borrowers’ repayment capacity must be monitored closely as borrowing costs continue to rise alongside growing debt levels in both the household and corporate sectors.

The council also said it is strengthening oversight of non-bank financial institutions, including quasi-banks, investment houses, non-stock savings and loan associations, pawnshops, and trust corporations.

The FSCC’s member agencies have rolled out various measures in response to the Middle East conflict’s widespread effects on the Philippine economy. The BSP raised interest rates to address rising inflation driven by the energy shock, while also ordering loan moratoriums for affected borrowers and requiring banks to reserve part of their capital as emergency buffers during periods of external stress.

The DOF, meanwhile, led the suspension of excise taxes on kerosene and liquefied petroleum gas (LPG) last month, which Finance Secretary Frederick Go said would result in savings of around P36.96 per 11-kilogram LPG cylinder and P5.56 per liter of kerosene.

Meanwhile, IC-regulated entities were directed to provide policyholders, plan holders, and health maintenance organization (HMO) members a minimum 90-day grace period for premiums, installments, or fees due from 15 April to 31 May 2026.

The IC also ordered regulated entities to grant a minimum 90-day extension of coverage for policies or agreements scheduled to lapse or expire on or before 31 May 2026, subject to payment of corresponding premiums. A separate three-month grace period for loan repayments was likewise mandated.