The Philippine financial system remains resilient despite risks posed by the ongoing national energy emergency, according to the Financial Stability Coordination Council (FSCC).

In an appendix to its 2025 Financial Stability Report, the FSCC said the conflict involving the United States and Iran presents “material but manageable” risks to the country’s financial stability.

“Main transmission channels operate through imported inflation, a wider current account deficit, and tighter external financing conditions, which could weigh on growth and raise credit risks if sustained,” the council said.

“Direct banking exposures to the region are small, and macrofinancial buffers—including sound bank capitalization, comfortable reserves, and an active macroprudential framework—provide resilience against immediate systemic stress.”

The FSCC said the Philippines’ primary exposure to the conflict stems from imported inflation driven by higher global oil prices, as well as pressure on the current account caused by rising energy costs and currency weakness.

The council noted that the country sources about 99 percent of its fuel imports through the Middle East. Although the Philippines does not directly import oil from Iran, its heavy reliance on Gulf supply routes means any disruption to regional production or shipping can quickly raise domestic fuel costs. Pump prices breached the triple-digit-per-liter mark in April, helping push headline inflation to a three-year high.

The peso has likewise remained near record lows, trading at around the P61 level against the US dollar. The FSCC said a weaker currency amplifies the impact of higher oil prices by increasing the peso cost of fuel and other dollar-denominated imports.

“Higher fuel and transportation costs raise the import bill and could widen the current account deficit, which stood at 3.6 percent of GDP, or US$12.5 billion, as of the third quarter of 2025,” it said.

Despite these risks, the council noted that only a limited number of Philippine firms—primarily in the utilities, industrial, information technology, consumer staples, and financial sectors—have direct links to the Middle East. Local banks also remain largely insulated from the region, reducing the risk of direct financial contagion.

“As of December 2025, combined cross-border claims on Africa and the Middle East accounted for only 1.9 percent of total claims, while liabilities represented 1.6 percent,” the FSCC said.

“Exposures to Iran and Israel are negligible, suggesting banking sector spillovers are more likely to arise from indirect channels—higher oil prices, tighter external financing conditions, and weaker growth—rather than direct counterparty defaults.”

The FSCC said the Philippine financial system remained stable as of end-2025, with banks maintaining strong capital buffers and sufficient capacity to support lending despite emerging risks.

To strengthen resilience further, the council outlined several measures, including requiring banks to build additional capital buffers during favorable periods, enhancing oversight of non-financial corporations and conglomerates, expanding data coverage for non-bank financial institutions, and operationalizing a systemic crisis management framework.