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Fitch lowers outlook of Philippine banks to negative
MANILA, Philippines — New York-based Fitch Ratings has lowered from stable to negative the outlook for several government and private-owned Philippine banks due to downside risks to the country’s medium-term growth prospects amid the COVID-19 pandemic.
The debt watcher lowered the outlook of state-run Land Bank of the Philippines (Landbank) and Development Bank of the Philippines (DBP), but affirmed their investment grade rating of BBB or a notch above minimum investment grade.
Likewise, Fitch also revised the outlook of Bank of the Philippine Islands (BPI), Philippine National Bank (PNB), BDO Unibank Inc. and Metropolitan Bank & Trust Co. (Metrobank).
The debt watcher affirmed the BBB-rating of BDO, BPI and Metrobank, as well as the BB credit rating of PNB.
Last July 12, Fitch lowered its outlook for the Philippines, but retained the country’s investment grade rating of BBB. The rating agency also lowered the Philippines’ 2021 gross domestic product (GDP) growth forecast to five percent as the country continues to struggle to contain the resurgence of COVID-19 infections.
Fitch is looking at a faster GDP growth of 6.6 percent in 2022 and 7.3 percent in 2023.
The debt watcher said business confidence and private consumption remain sluggish and pose sustained challenges to the local banking system’s asset quality.
“The less vigorous economic recovery is likely to weigh on loan demand and business opportunities over the next 12 to 18 months,” Fitch said.
For state-run banks, Fitch does not expect the profitability core metric of Landbank to recover to pre-pandemic levels even in 2022, while earnings as a percentage of risk-weighted assets of DBP would remain flat at relatively weak levels in 2021, putting further pressure on its profitability score.
Fitch noted the non-performing loan (NPL) ratio of Landbank at three percent and DBP at 3.7 percent as of end-March, still below the industry average of 4.2 percent.
However, it expects new credit impairments for Landbank and DBP to continue in the second half as economic conditions remain challenging due to the weaker credit profiles of some of the banks’ customer segments.
On the part of Landbank, Fitch said the impending merger with the United Coconut Planters Bank may add pressure on the bank’s asset quality due to acquired entity’s weak loan quality and sizeable balance sheet.
For private-owned banks, Fitch believes declining asset yields, lower market-related income and muted business volumes may continue to challenge the industry profitability this year.
Likewise, it said credit costs would remain above pre-pandemic levels as the industry continues to book provision against rising impaired loans given the sluggish economic recovery.
The credit rating agency expects the Philippine banking industry to remain adequately capitalized over the medium term.
Source: https://www.philstar.com/business/2021/07/21/2113883/fitch-lowers-outlook-philippine-banks-negative