Fitch upgrades ‘viability rating’ of 5 leading PH banks
London-based debt watchdog Fitch Ratings has upgraded its “viability rating” on five of the Philippines’ largest banks, offering a rosier view of these lenders’ credit strength.
In a March 11 report, Fitch Ratings upgraded the viability rating on Ayala-led Bank of the Philippine Islands (BPI), BDO Unibank of the Sy Group and Ty-led Metropolitan Bank and Trust Co. (Metrobank) by one notch to “bbb-” from “bb+.”
Likewise, it raised the viability rating on state-controlled Land Bank of the Philippines (Landbank) to “bb+” from “bb.”
Meanwhile, Fitch Ratings lifted the viability rating on state-run Development Bank of the Philippines (DBP) to “bb” from “bb-.”
Viability ratings represent Fitch Ratings’ “primary assessment of the intrinsic creditworthiness” of financial institutions.
They are assigned on the familiar 19-point, long-term rating scale, although using lowercase letters.
Fitch Ratings also affirmed its long-term issuer default ratings (IDR) of “BBB-” on BPI, BDO and Metrobank, all with a “stable” outlook. BBB- is the minimum investment grade rating.
Stable outlook
A stable outlook means that the rating is unlikely to change within the next 12 to 24 months.
The government support rating (GSR) of the three banks was likewise affirmed at “bbb-.”
GSR reflects the likelihood of receiving external support in case of need.
For both Landbank and DBP, the IDR was affirmed at “BBB” with stable outlook. In addition, Fitch has affirmed the GSR at “bbb.”
Both state-owned banks were given the same rating as the Philippine sovereign. This IDR (one notch higher than minimum investment grade) indicates low expectation of default risk.
The improved viability rating on BPI, BDO and Metrobank was prompted by Fitch Ratings’ upward revision of the Philippine banking sector’s operating environment score to “bbb-”/stable, from “bb+.”
“We expect the country’s robust economic growth to support asset quality and revenue prospects in the near to medium term,” Fitch Ratings said.
In the case of BPI, Fitch Ratings said the rating “also reflects BPI’s franchise as one of the country’s three-largest privately owned banks, which anchors its steady funding profile and superior asset quality relative to the industry average.”
For BDO, Fitch Ratings said rating “also takes into account BDO’s solid domestic franchise, which helps it generate quality business volume and maintain a leading funding position.”
For Metrobank, the debt watchdog said the rating “also balances its solid franchise, superior asset quality relative to the industry and healthy capital buffers against risks associated with high credit growth.”
Gov’t financial institutions
“This latest rating upgrade is a testament to Landbank’s sound financial foundation and resilience. With a solid capital base and an improving profitability outlook, we are well-positioned to drive stronger financial performance while deepening our commitment to agriculture and other key economic sectors that fuel national growth,” Landbank president and CEO Lynette Ortiz said in a press statement on Thursday.
The improved rating, Fitch Ratings said, considered Landbank’s “improving capital buffers” as well as its expectation of “improved profitability on lower credit costs amid the resilient operating environment and sustained resolution of nonperforming loans.”
It also “reflects the risks and benefits from its strong state linkages and its status as a policy bank,” Fitch Ratings added.
For DBP, Fitch Ratings said the forthcoming amendments of the bank’s charter that allow it to sell shares to other investors was unlikely to affect its support assessment in the near term, noting that the state must retain at least a 70-percent stake in the bank.
Aside from the improved operating environment, the upgrade in DBP’s viability rating is driven by the “incremental improvement in the bank’s capital buffers over the past year.” It also “considers the risks and benefits from its state linkages and its role as a policy bank,” Fitch Ratings noted.
