Debt watcher Fitch Ratings raised its credit outlook for state-run lenders Development Bank of the Philippines (DBP) and Land Bank of the Philippines in line with the expansion of the country’s economy.
Fitch raised the two banks’ long-term issuer default ratings (IDRs) to “stable”.
The banks’ support rating floors were adjusted anew, coming from a recent upgrade only in December. Their scores were now at “BBB”, a jump from “BBB-” in December.
The upgrade meant “the capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.”
“The banks’ roles appear to have been expanded and future roles made clearer after pronouncements by the administration of President Rodrigo Duterte, even though there have been no changes in their state ownership, systemic importance or broader mandates. This raises our expectations for the state to provide support to the banks in times of need to enable them to carry out their objectives in support of government policy,” Fitch said.
Landbank has been ordered in 2016 to absorb Philippine Postal Savings Bank, which formally became the Overseas Filipino Bank just this month. The DBP, on the other hand, is being proposed to become the country’s infrastructure bank.
“Around 93 percent of Landbank’s loans have been extended to mandated or priority sectors, while 88 percent of DBP’s loans are policy-related. Both banks have access to official development assistance funds—with government-guaranteed funds from multilateral and bilateral organizations—though recent usage of such funds has been low. The banks are primarily deposit-funded—around 73 percent of Landbank deposits are from the public sector, versus 74 percent for DBP,” according to Fitch.
Fitch noted both banks have been getting modest budget support in the past two years.
Last month, Fitch raised the Philippines’ own credit rating, assigning it a “stable” outlook. Fitch noted “strong and consistent macroeconomic performance has continued, underpinned by sound policies that are supporting high and sustainable growth rates.”