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.
