Four mid-sized local banks had their long-term issuer default ratings (IDRs) upgraded by debt watcher Fitch Ratings, with a “stable” outlook, on the back of a stable domestic banking system and a growing economy.
In a statement on Monday, Fitch said it had raised the IDRs of China Banking Corp., Philippine National Bank, Rizal Commercial Banking Corp. (RCBC) and Security Bank Corp. to ‘BB+’ from ‘BB.’
Fitch also upgraded the four banks’ viability ratings to ‘bb+’ from ‘bb.’
“The ratings reflect the banks’ higher growth appetite amid a broadly-favorable backdrop and their smaller but still meaningful local franchises as mid-sized banks in the Philippines. They also incorporate Fitch’s expectation that the banks will maintain broadly-steady asset quality, adequate capital buffers and stable funding and liquidity profiles as they grow and potentially gain market share,” the credit rating agency explained.
“Fitch expects the four banks to continue growing their branch footprints as they allocate more resources to consumer-centric portfolios. The banks continue to target 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 added.
Their asset quality were expected to “remain broadly steady, aided by a favorable macroeconomic environment and rising incomes,” Fitch said.
“Ambitions for market share gains and high risk-weighted asset growth—exceeding internal capital generation—are likely to erode existing capital ratios, but Fitch expects the banks to maintain adequate capital buffers to support growth targets and offset rapid growth risks,” it said.
As for the money laundering scandal that involved Yuchengco-led RCBC, Fitch said it had “highlighted existing gaps in domestic anti money-laundering standards,” and that the credit ratings agency was expecting regulators to take action to deter similar incidents.
For the domestic banking sector in general, “Fitch believes steady 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.”
In this regard, Fitch said it had also upgraded the operating environment factor to ‘bbb-’ from ‘bb+.’
“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,” Fitch said.