Fitch upgrades credit rating of 4 Philippine banks

MANILA, Philippines – Fitch Ratings has upgraded the credit rating of four Philippine banks on the back of sustained economic growth and major reforms in the banking sector.

Fitch upgraded the long-term issuer default ratings (IDRs) of China Banking Corp., Philippine National Bank (PNB), Rizal Commercial Banking Corp. (RCBC) and Security Bank Corp. to ‘BB+’ from ‘BB.’

Likewise, the viability ratings of the four banks were raised to ‘bb+’ from ‘bb’ on the back of stable outlook. Fitch has concurrently upgraded the national long-term rating on PNB to ‘AA-’ in line with those of China Bank and Security Bank.

“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.

The rating agency also upgraded the operating environment factor to ‘bbb-’ from ‘bb+.’

Fitch cited the reforms being implemented by the Bangko Sentral ng Pilipinas (BSP).

“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,” Fitch said.

The ratings reflect banks’ higher growth appetite amid a broadly-favorable backdrop and their smaller but still meaningful local franchises as mid-sized banks in the Philippines.

The four banks are also expected to maintain broadly-steady asset quality, adequate capital buffers and stable funding and liquidity profiles as they grow and potentially gain market share.

The stable outlooks reflect Fitch’s expectation that the banks’ financial profiles would remain steady over the near- to medium-term.

“We believe 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 – will support the banks’ rating profiles,” Fitch said.

The debt watcher 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.