Fitch upgrades debt ratings of 4 PH banks

Global debt watcher Fitch Ratings said Monday it upgraded the credit scores of four Philippine banks amid sustained economic growth and favorable operating environment.

Fitch said it raised the long-term issuer default ratings of China Banking Corp., Philippine National Bank, Rizal Commercial Banking Corp. and Security Bank Corp. to “BB+” from “BB” with a stable outlook.

Fitch also upgraded the national long-term rating of PNB to ‘AA-’, in line with those of ChinaBank and Security Bank.

“Fitch believes steady growth in the Philippine economy and enhancements to banking regulations over the last few years has strengthened the domestic operating environment, notwithstanding long-standing structural issues, such as concentrated loan portfolios, developing corporate governance standards and family control and conglomerate ownership of the banks,” Fitch said in a statement.

“We expect continued economic improvement and pro-active regulatory oversight alongside gradually-improving regulatory frameworks to benefit banks’ asset quality and ultimately their credit profiles through the cycle. This is an important factor underlying today’s ratings upgrades,” it said.

Fitch said the issuer default ratings of the four Philippine banks and the national long-term ratings of ChinaBank, PNB and Security Bank were driven by their viability ratings. Fitch said the upgrade of PNB’s national long-term rating reflected an improved credit profile relative to those of other Philippine entities.

“The ratings reflect the banks’ higher growth appetite amid a broadly-favorable backdrop and their smaller but still meaningful local franchises as mid-sized banks in the Philippines. They also incorporate Fitch’s expectation that the banks will maintain broadly-steady asset quality, adequate capital buffers and stable funding and liquidity profiles as they grow and potentially gain market share,” it said.

Fitch said the stable outlooks reflected expectation that the banks’ financial profiles would remain steady over the near- to medium-term. It said a continued economic growth, a relatively conservative regulatory environment and a liquid banking system, backed by a growing middle-class population and strong remittances from overseas workers, would support the banks’ rating profiles.

“Fitch expects the four banks to continue growing their branch footprints as they allocate more resources to consumer-centric portfolios. The banks continue to target high loan growth in the mid-teens to high-20s and may also undertake acquisitions as they build their franchises and enhance their market positions,” it said.

It said the four banks’ asset quality should remain broadly steady, aided by a favorable macroeconomic environment and rising incomes. 

Fitch noted that asset quality improvements have been most pronounced for PNB and RCBC, whose non-performing loan ratios fell to 2.5 percent and 1.8 percent as of end-2015 from 8.1 percent and 7.2 percent in 2010, respectively.