Banking system outlook ‘stable,’ says Fitch

Fitch Ratings revised their outlook on the Philippine banking system to “stable” from “negative,” citing continued economic recovery from recession as well as waning risks related to the pandemic.

However, the credit watcher maintained the negative outlook on the creditworthiness of five Fitch-rated Philippine banks, considering that such ratings are tied to that of the national government.

These include the privately owned BDO Unibank, Bank of the Philippine Islands and Metropolitan Bank and Trust Co. as well as state-owned Land Bank of the Philippines and Development Bank of the Philippines.

In July 2021, Fitch revised the Philippines’ sovereign rating outlook to negative from stable, which reflects risks to the national government’s medium-term growth prospects “due to potential scarring from the COVID-19 pandemic and challenges related to the unwinding of the policy response.”

Still, the Philippine sovereign rating was kept at the investment-grade “BBB,” considering the country’s “strong external finances, government debt that is slightly below the peer median, and weaker per capita income, governance and human development indicators relative to peers.”

In the latest peer review report on Philippine banks dated May 30, Singapore-based Fitch analysts Tamma Febrian and Willie Tanoto said the five banks’ issuer default ratings (IDR) are driven by their expectation of sovereign support in times of need rather than by the banks’ standalone credit profiles.

Pandemic impact

In a previous peer review of these banks, issued in August 2021, Fitch revised the outlook on their long-term IDR to negative from stable, believing that “the state’s ability to provide extraordinary support to banks, if needed, is deteriorating as the Philippines grapples with the impact of the pandemic-induced economic slowdown.”

Back then, Fitch noted that the Philippines’ gross domestic product contracted the most among its regional peers since the start of the pandemic.

In the latest peer review, Fitch noted that the five banks were now operating in an environment marked by a gradual return to prepandemic growth. In particular, Fitch noted that mobility restrictions were further eased due to falling COVID-19 cases and rising vaccination rates.

“Improving business confidence has translated into a pick-up in loan demand, with system credit growth reaching 5.9 percent year-on-year in March 2022—the fastest since May 2020,” Fitch said. “We expect loan growth to continue to accelerate and settle at a high single-digit level by end-2022.”