Fitch downgrades outlook on Philippine banking environment, six local banks

Global credit watcher Fitch Ratings on Tuesday downgraded its outlook on  the Philippine banking environment and six local banks, a week after it demoted its credit outlook on the country amid the economic fallout from the COVID-19 pandemic.

Fitch downgraded its bank operating environment score to “bb+” with a negative outlook versus its earlier rating of “bb+” with a stable outlook.

This comes as the local economic growth was slower than earlier expected, as the gross domestic product (GDP) shrank by 4.2% in the first three months of the year.

“Business confidence and private consumption remain sluggish and pose sustained challenges to banking-system asset quality,” Fitch said in a dispatch.

“The less vigorous economic recovery is likely to weigh on loan demand and business opportunities over 12 to 18 months,“ it added, as it downgraded its outlook on six local lenders:

Bank of the Philippine Islands

BPI’s long-term credit rating was affirmed at “BBB,” while its viability rating (VR) was downgraded to “bb+” from “bbb-.”

“BPI’s VR is underpinned by its strong domestic franchise, adequate loss-absorption buffers and effective execution of management strategy to drive consistent financial performance in recent years,” it said.

BPI was the fourth-largest bank in the Philippines in 2020 based on assets, with a total of P1.947 trillion.

BDO Unibank Inc.

BDO’s long-term rating was affirmed at “BBB-,” while its VR was downgraded to “bb+” from “bbb-.”

Fitch noted BDO’s management track record, loss absorption buffers, and market-leading franchise, but these are counterbalanced by the sustained weakness in the operating environment.

BDO was the largest bank in the Philippines in 2020, with P3.246 trillion worth of assets.

Development Bank of the Philippines

DBP’s long-term issuer default rating was affirmed at “BBB” and its VR at “bb,” with expectations of a high likelihood of government support.

DBP is 100% owned by the state, and has an augmented policy role in the economic slowdown as it serves as an intermediary for the economic countermeasures.

The bank was the sixth-largest bank in 2020 in terms of assets worth P1.042 trillion.

Land Bank of the Philippines

Land Bank’s long-term credit rating was affirmed at “BBB” and its VR at “bb,” as the credit watcher expects a high likelihood of “extraordinary support” from the government if needed.

The rating comes as Land Bank is state run, and has an increasingly important policy role and high systemic importance as the country’s second-largest bank in terms of deposits in 2020.

“LBP’s VR is weighed down by our perception of an increased risk appetite as it fulfills its policy role of stimulating lending to afflicted sectors of the economy,” Fitch said.

Metropolitan Bank & Trust Co.

Metrobank’s credit rating was affirmed at “BBB-,” while its VR was downgraded to “bb+” from “bbb-.”

Fitch cited the bank’s management track record and franchise, but noted that such strengths will be challenged over the rating horizon given the current operating environment.

Metrobank was the third-largest bank in the Philippines in 2020 with total assets worth P2.172 trillion.

Philippine National Bank

Fitch affirmed the long-term issuer default rating at “BB,” and its VR at “bb,” which are underpinned by it’s “adequate” loss absorption buffers and “reasonable” franchise as the country’s fifth-largest bank.

“However, these strengths are offset by our assessment of the challenging operating conditions. These challenges continue to exert pressure on the bank’s asset quality and profitability, which are already significantly weaker than major peers,” Fitch said.

PNB was the fifth-largest bank in the country with total assets worth P1.227 trillion in 2020.

Fitch Ratings last week downgraded its credit outlook on the Philippines to negative from stable, as well as its growth outlook for this year to 5.0%.

Among the risks cited are the country’s debt-to-GDP ratio, its weaker macroeconomic prospects, the deterioration in external indicators, and the impact of the pandemic on the economy.

Shares in BPI closed Monday down 45 centavos or 0.52% to P86.05 apiece, BDO down 60 centavos or 0.55% to P108.50 apiece, Metrobank down P1.70 or 3.56% to P46.10 apiece, and PNB up P0.78 or 3.94% to P20.60 apiece.—AOL, GMA News