Fitch Ratings said the proposed amendments to Development Bank of the Philippines’ (DBP) charter, which will allow the state to sell part of its stake in the bank, are unlikely to have any impact on the bank’s sovereign support-driven issuer default ratings (IDR).
“However, a stake sale that significantly improves DBP’s capital position may be positive for the bank’s standalone credit profile, as it can restore underlying capital buffers that were eroded when DBP injected capital into Maharlika Investment Fund in late-2023,” it said.
The state-run DBP proposed to raise its authorized capital to P300 billion from P35 billion and potentially sell shares that will reduce the state’s 100-percent ownership.
The proposed legislation, however, requires the state to maintain at least a 70-percent stake to ensuring the government’s continued majority control.
“We believe DBP continues to play a strategic role in advancing the state’s policy agenda that the government is likely to retain, notwithstanding the possibility of lower public ownership. DBP’s policy role underpins its sovereign support-driven IDR of ‘BBB’/Stable, which is equalized with the Philippines’ sovereign rating,” Fitch said.
Fitch said a capital injection via a potential stake sale that enhances DBP’s capital position materially could lead to an upgrade in the bank’s viability rating (VR), which reflects its standalone credit strength.
Fitch downgraded DBP’s VR to ‘bb-’ from ‘bb’ in March 2024 due to its P25-billion capital contribution to Maharlika Investment Fund, which would have reduced its common equity Tier 1 (CET1) ratio by 4 percentage point and resulted in a breach of the local capital requirement if not for regulatory forbearance.
It said DBP’s capitalization has improved gradually since, as indicated by its parent-level CET1 ratio of 13.8 percent at end-September 2024 (up from end-2023’s 13 percent), factoring in forbearance.
“We expect the bank’s capital buffers to continue to rise steadily as profitability improves, helped by lower credit costs amid a robust economic environment. We have not factored in any potential stake sale in our base-case projections, given the significant uncertainty surrounding the timeline and execution of any sale, but more concrete plans could buoy the VR if and when they are announced. Beyond enhancements in its capitalization, DBP’s VR could also be upgraded should we see improvement in its asset quality and profitability,” Fitch said.