Fitch downgrades outlook on Landbank to 'stable'
MANILA, Philippines — Fitch Ratings on Tuesday scaled down its outlook on state-run Land Bank of the Philippines following a similiar move on the Philippines as the country reels from shocks triggered by the coronavirus disease-2019 (COVID-19) outbreak.
In a statement, the global debt watcher said it downgraded its outlook on Landbank to "stable" from "positive", indicating that the lender's credit rating will likely be maintained over the next 18-24 months. Fitch kept LandBank's rating at "BBB".
A credit rating is a measure of an entity’s capacity to settle its debts. The higher the rating, the better the perception of investors on a borrower. For most credit raters, an “A”-level rating represents the highest tier.
Fitch's latest action came on the heels of its decision to revert the outlook for the Philippines' BBB investment grade rating to stable from positive, a setback on the Duterte administration dream of bagging an "A"-level rating.
Being a state-run lender and the country's fourth-largest bank in terms of asset, Landbank's credit profile was immediately affected by Fitch's surprise outlook revision for the country last week. But Landbank's "capitalisation should provide a moderate buffer to withstand market stress and weaker operating conditions," Fitch said.
"We expect the bank to undertake a greater policy role to support the Philippines' economic recovery, which may weaken its asset quality," the credit rater explained.
"Against this backdrop, we have revised the outlook on the bank's risk appetite to negative to reflect the heightened risk of government influence on its underwriting standards and risk controls," it added.
As the health crisis and drastic containment measures shut dows businesses and displace thousands of workers, Philippine banks are bracing for possible build up of bad debts.
Lower interest rates as a result of the central bank's easing moves to support the economy could also mean lower earnings for every peso that banks lend out, further weighing on their profits. "We expect the sharp slowdown to weaken business conditions, stress credit portfolios, and weigh on profitability at least over the next year," Fitch said in a separate statement also on Tuesday.
"Banks with stronger franchises and strategies, and those whom we judge to have more moderate risk appetites and steadfast underwriting standards, are likely to be less affected," it added.
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