MANILA, Philippines - Fitch Ratings has raised its credit outlooks on Land Bank of the Philippines (Landbank) and on Development Bank of the Philippines (DBP) amid the country’s improved governance standards and global competitiveness.
In a statement, the debt watcher said the outlooks on the two banks have been revised to “positive” from “stable,” while the credit ratings on both firms were affirmed at “BB+.”
Fitch explained the outlooks were adjusted to make them in line with a recent upgrade in the Philippines’ sovereign outlook to “positive” from “stable.”
With better prospects, the country is expected to have the ability to provide support to the banking sector if necessary.
“The revision in sovereign rating outlook takes into account the improvement in Philippine governance standards and global competitiveness,” Fitch said.
“Falling public debt, and resilient economic growth and external finances should at least help sustain the sovereign’s ability to support the banking sector,” Fitch said.
The “BB+” grade on Landbank and DBP reflects their moderate asset quality and satisfactory capitalization, funding and earning profiles, Fitch said.
Both banks are fully-owned by the government and are deemed important to the local banking system due to the big chunk of assets and deposits they hold.
Fitch said it believes both may even be designated by the Bangko Sentral ng Pilipinas (BSP) as domestic systemically important banks, or those which would have stricter capital requirements because their collapse would greatly affect the economy.
The government earlier this year proposed the merger of the two banks to improve operating efficiency and remove overlapping policy functions. The merger remains pending before legislators.
Fitch said it may upgrade the credit ratings on both banks if there is an improvement in asset quality, franchises, and risk appetites over the medium-term.
At the same time, the ratings may be revised if the banks face high credit losses that would lead to capital deterioration especially as they adhere to state policy with regard to lending activities.