Banking system outlook ‘stable’, says Fitch

Fitch Ratings revised its outlook on the Philippine banking system from “stable” to “negative”, citing continued economic recovery from the recession as well as diminishing risks from the pandemic.

However, the Credit Watcher maintained a negative outlook on the creditworthiness of five Filipino banks rated by Fitch, considering these ratings to be linked to that of the national government.

These include the private companies BDO Unibank, Bank of the Philippine Islands and Metropolitan Bank and Trust Co., as well as the Land Bank of the Philippines and the Development Bank of the Philippines.

In July 2021, Fitch revised the outlook for the Philippines’ sovereign rating from stable to negative, reflecting risks to the national government’s medium-term growth outlook “due to potential scars from the COVID-19 pandemic and challenges related to the unfolding of the political response”. .”

Still, the Philippines’ sovereign rating was maintained at “BBB” investment grade, given “strong external finances, public debt slightly below the median of peers, and indicators of per capita income, governance and of human development compared to peers”. ”

In the latest peer review report on Philippine banks dated May 30, Singapore-based Fitch analysts Tamma Febrian and Willie Tanoto said the issuer default ratings (IDRs) of the five banks were driven by their expectation of sovereign support when needed rather than by banks’ stand-alone credit profiles.

Pandemic impact

In a previous peer review of these banks, published in August 2021, Fitch revised the outlook for their long-term IDR from stable to negative, believing that “the ability of the state to provide extraordinary support to banks, if needed, is deteriorating as the Philippines grapples with the impact of the pandemic-induced economic downturn.

At the time, Fitch noted that the Philippines’ gross domestic product had contracted the most among its regional peers since the start of the pandemic.

In the latest peer review, Fitch noted that the five banks were now operating in an environment marked by a gradual return to pre-pandemic growth. In particular, Fitch noted that mobility restrictions have been further eased due to declining COVID-19 cases and rising vaccination rates.

“Improving business confidence translated into a pick-up in loan demand, with system credit growth reaching 5.9% year-on-year in March 2022, the fastest since May 2020,” said Fitch. “We expect loan growth to continue to accelerate and settle in high single digits by the end of 2022.”

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