Fitch keeps Land Bank rating at ‘BB’
Fitch Ratings has maintained the credit rating of Land Bank of the Philippines as it cited the state-owned bank’s favorable financial standing.
In a statement, Fitch said the credit rating of Land Bank was maintained at “BB,” which was just a notch below investment grade and was the same as the rating for the national government. The outlook on the rating was “stable,” which meant it was likely to stay the same within the short term.
“The rating affirmation reflects Land Bank’s gradually improved liquidity balance sheet and satisfactory earnings profile, offset by risks arising from its agricultural lending mandate, loan concentration, and non-performing assets,” Alfred Chan, director of the financial institution team of Fitch, said in the statement.
The credit rating is expected to help the government-run bank maintain its access to the international and domestic bond markets, which it taps once in a while to raise funds needed for its developmental lending operations.
Just last week, Land Bank started offering Tier-2 notes to the local market, hoping to raise at least P6.5 billion to help fund its operations this year. The offer period for the notes, which have a 10-year maturity, will end on January 20.
According to Fitch, Land Bank was expected to remain adequately capitalized even as it was required by law to remit half of its net income to the national government as dividends.
Land Bank reported earlier that its net income amounted to P6.2 billion in the first seven months of 2011, rising 24 percent from P5 billion in the same period of the previous year. The bank said its profitability was driven largely by its sustained growth in lending, with focus on the agriculture sector, which it was mandated to help develop.
The bank reported earlier that its outstanding loans to farmers and the fisheries sector as of end-July 2011 amounted to P16.6 billion, up 33 percent from P12.5 billion as of the same period of the previous year.
Land Bank said it intended to further accelerate its lending operations in 2012 in consonance with the national government’s drive to speed up growth of the economy, especially after a slowdown last year.
Fitch said that the bank’s mandate of supporting the farm and fisheries industry was one key risk to its credit rating given the sector’s perceived risk. Another risk to the bank’s credit rating was the small probability of government support in case the bank needed liquidity.
Nonetheless, Fitch said the current liquidity level of the bank was comfortable. The credit-rating firm noted that Land Bank’s loans-to-deposit ratio stood between 45 and 50 percent, indicating that while about half of the bank’s liquidity in the form of deposits had been used for lending, another half remained in its hands.
International standards dictate that loans-to-deposit ratio of 70 percent is still very comfortable, while one that is beyond 90 percent may be deemed risky.
Fitch also cited Land Bank’s comfortable capitalization level, with its core Tier-1 capital standing at 12.5 percent of its risk-weighted assets.
“The bank’s solvency position has steadily improved, with non-performing assets at about 20 percent of core equity compared with 38 percent at end-2008,” Fitch added.
Land Bank, which Fitch said accounted for about 9 percent of the Philippine banking sector’s assets, has 327 banking units all over the country.
