Fitch upgrades viability ratings for BDO, Metrobank, BPI, LANDBANK, DBP

FITCH RATINGS on Wednesday upgraded its viability ratings (VR) for the Philippines’ three biggest private banks in asset terms and its two largest state-run lenders.

Fitch said in separate statements that it raised the VRs of BDO Unibank, Inc., Metropolitan Bank & Trust Co. (Metrobank), Bank of the Philippine Islands (BPI), Land Bank of the Philippines (LANDBANK) and Development Bank of the Philippines (DBP).

The VR upgrades reflect the banks’ standalone credit strength and was driven by the debt watcher’s upward revision of the Philippine banking sector’s operating environment score to “bbb-”/stable from “bb+”/stable, it said.

“This is underpinned by the country’s robust economic growth, which is favorable for banks’ asset quality and revenue in the near to medium term.”

Fitch also affirmed its long-term issuer default ratings (IDR) for the five banks with a stable outlook.

It likewise kept these lenders’ government support ratings (GSR), reflecting its expectation that the sovereign will rescue these banks if needed due to their high systemic importance.

BDOBDO’s VR was hiked to “bbb-” from “bb+,” while its long-term IDR and GSR were affirmed at “BBB-” with a stable outlook and “bbb-,” respectively.

“The VR also takes into account BDO’s solid domestic franchise, which helps it generate quality business volume and maintain a leading funding position,” Fitch said.

It said BDO’s entrenched local franchise has allowed it to attract quality customers, manage risks and maintain its profitability.

It added that it expects the bank’s asset quality to remain stable over the next 12 months amid an improving economic backdrop.

Meanwhile, BDO’s margins could narrow as the central bank continues to cut rates, but its fee income will remain supported by its credit card business.

“We expect the bank to maintain stable capitalization, despite its growth plans, amid improved internal capital generation,” Fitch said.

“BDO’s funding and liquidity profile is a relative rating strength… The bank is funded primarily by customer deposits, with low-cost current and savings accounts comprising 71% of deposits — one of the highest ratios among domestic peers.”

METROBANKMetrobank’s VR was also upgraded to “bbb-” from “bb+,” while its long-term local- and foreign-currency IDRs were kept at “BBB-” with a stable outlook. Fitch also affirmed its “bbb-” GSR.

“Metrobank’s VR also balances its solid franchise, superior asset quality relative to the industry and healthy capital buffers against risks associated with high credit growth,” Fitch said.

“Its large balance sheet and focus on the commercial and mid-market segment have enabled the bank to attract higher quality borrowers and generate robust business volumes over the years.”

The debt watcher said Metrobank’s improved loan ratios reflect its sound underwriting standards.

“We have revised Metrobank’s earnings and profitability score to ‘bbb-’/stable from ‘bb’/stable because of the higher operating environment score. The revision is also driven by our view that the bank is likely to maintain its risk-adjusted returns above its historical average over the next 18 months, owing to a slower pace of policy rate cuts and an increasing share of higher-yielding retail loans. Market-related income is also likely to remain high due to persistent market volatility,” it said.

Fitch said it expects the bank to post sustained earnings and healthy capitalization over the next 12 months.

It also has a strong funding and liquidity profile as it has a “favorable” deposit structure, it added.

BPIFitch upgraded BPI’s VR to “bbb-” from “bb+” and affirmed its long-term IDR at “BBB-” with a stable outlook. Its GSR was likewise kept at “bbb-.”

It said the bank’s VR reflects its strength as one of the country’s biggest private banks, “which anchors its steady funding profile and superior asset quality relative to the industry average.”

“BPI holds a roughly 16% market share in system loans, making it the country’s second-largest bank by loans. The bank’s market presence has been aided by the 2024 acquisition of Robinsons Bank Corp. (RBC) as well as robust lending growth in the retail sector. The shift towards the consumer segment is likely to be sustained in line with the bank’s effort to improve profitability,” Fitch said.

It said BPI was able to manage the impact of its merger with RBC on its asset quality. “Resilient economic growth and BPI’s steady credit standards should keep its asset quality metrics above the industry average,” it added.

Fitch said the BPI profitability will be steady this year as business volume growth stays robust despite an expected compression in margins due to the central bank’s rate cuts and an increase in retail loans.

“The common equity Tier 1 ratio declined to 13.9% in 2024, from 15.3% at end-2023, reflecting a one-off impact from BPI’s merger with RBC as well as strong risk-weighted asset growth. Nevertheless, we expect capitalization to steady over coming quarters, as risk-weighted asset growth is likely to decelerate to align with internal capital generation,” it added.

LANDBANK, DBPAs for the government-run banks, Fitch raised LANDBANK’s VR to “bb+” from “bb” and DBP’s VR to “bb” from “bb-.”

It affirmed both lenders’ long-term local- and foreign-currency IDRs at “BBB” with a stable outlook, as well as their “bbb” GSRs.

Fitch said both banks’ long-term IDRs are driven by its GSR, which are at par with the Philippines’ sovereign rating of “BBB” with a stable outlook, driven by its expectation of state support for both lenders in times of need amid their policy roles.

“This considers the bank’s unique and strategic policy role, the state’s 100% stake in the bank, as well as its systemic importance as the largest state-owned bank in the country, with a market share of about 14% of system assets,” it said about LANDBANK.

“Our assessment takes into account DBP’s strategic role as the country’s infrastructure financing bank and its 100% state ownership. A revision under way to the bank’s charter that allows it to sell shares to other investors is unlikely to affect our support assessment in the near term, as the state must retain at least a 70% stake in the bank,” it added.

The debt watcher said LANDBANK’s and DBP’s upgraded VRs reflect their improved capital positions, as well as the risks and benefits from their strong state linkages and roles as government policy banks.

LANDBANK is expected to post improved asset quality this year, as well as sustained core profitability in the near term, Fitch said.

“LANDBANK’s operating profitability was affected by large provisions in 2024, but credit costs are likely to decline this year amid a resilient economy and falling interest rates. Any pressure on the lending margin is also likely to be offset by higher market-related income on prolonged market volatility.”

The bank’s capitalization is also likely to improve, with its liquidity seen to stay strong as it is largely funded by customer deposits, with about 59% from government-linked entities.

“This underscores its high reliance on state-linked deposits for funding, but these deposits have proven to be a stable source over the years.”

Meanwhile, Fitch said it expects pressures on DBP’s asset quality to subside amid an improving operating environment.

This will lead to lower credit costs, which would support its profitability, it said.

“We also expect the bank’s market-related income to remain high in 2025 amid heightened market volatility, which should offset margin pressures stemming from a likely decline in the policy rate,” Fitch said.

“We expect DBP’s capitalization to steadily improve over the next two years as internal capital generation recovers to more than sustain risk-weighted asset growth… DBP’s liquidity coverage ratio of 128% at end-2024 reflects its liquid balance sheet. The bank sources the majority of its funding from customer deposits, most of which are linked to the public sector. This underscores the bank’s strong state linkages and the stability of its funding profile,” it added. — BVR