Fitch Ratings revises outlook for PH banks to 'negative'

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Metro Manila (CNN Philippines, July 20) — Fitch Ratings has revised its outlook for top Philippine banks after downgrading its outlook for the country to “negative.”

In a statement this week, the global debt watcher announced it changed “stable” to “negative” its outlook on the long-term issuer default ratings (IDRs) of Land Bank of the Philippines, Bank of the Philippine Islands (BPI), Philippine National Bank (PNB), Development Bank of the Philippines (DBP), BDO Unibank, and Metrobank.

Just last week, Fitch downgraded its outlook for the Philippine economy to "negative" from the previous "stable". 

However, Fitch maintained its IDRs of “BBB” for Land Bank and DBP; “BBB-“ for BPI, BDO, and Metrobank; and “BB” for PNB.

These ratings are notches away from the government’s targeted A-level ratings.

The credit rating agency noted that the national economy recovered slowly than its initial expectation, especially with economic output plunging anew by 4.2% in the first quarter of 2021.

“Business confidence and private consumption remain sluggish and pose sustained challenges to banking system asset quality,” said Fitch Ratings.

The international credit rater expects the country’s gross domestic output to expand by 5% this 2021, still below the government’s dialed-down 6-7% target band for the year.

“The less vigorous economic recovery is likely to weigh on loan demand and business opportunities over the next 12 to 18 months,” said Fitch Ratings, adding it has likewise revised the banks’ operating environment score to “bb+”/negative” from “bb+”/stable.”

This score acts as a “constraining factor” on the banking institution’s viability rating, it added.

Fitch defines “bb” ratings as denoting “moderate” prospects for a bank’s current viability.

“A moderate degree of fundamental financial strength exists, which would have to be eroded before the bank would have to rely on extraordinary support to avoid default,” it said.

“However, an elevated vulnerability exists to adverse changes in business or economic conditions over time,” added Fitch.