Philippine banks have set aside the most funds for potential loan losses since at least 2008, bracing for defaults as the Middle East conflict weighs on an already weak economy. The increased provisions reflect growing concern over borrowers' ability to repay amid surging inflation and economic uncertainty.

Lenders are building reserves at the fastest pace in over a decade as the conflict exacerbates price pressures that were already straining households and businesses. The move signals that banks expect a rise in non-performing loans in coming quarters.

Analysts say the provisions are a prudent response to the deteriorating macroeconomic environment, with inflation accelerating due to supply chain disruptions and higher commodity prices linked to the war. The central bank has also tightened monetary policy to combat inflation, further pressuring borrowers.