February 8, 2017 / 9:23 AM / 2 years ago

Fitch Affirms Philippine Government-Owned Banks DBP, LBP

(The following statement was released by the rating agency) SINGAPORE, February 08 (Fitch) Fitch Ratings has today affirmed the Long-Term Issuer Default Ratings (IDRs) on two Philippine government-owned banks - Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP) - at 'BB+'. The Outlooks on the Long-Term IDRs remain Positive, reflecting the Outlook on the Philippines' sovereign rating. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS, NATIONAL RATINGS, SUPPORT RATINGS AND SUPPORT RATING FLOORS The IDRs and National Ratings of DBP and LBP reflect Fitch's expectation of extraordinary sovereign support for both banks in times of need, as denoted by their Support Ratings (SRs) of '3' and Support Rating Floors (SRFs) of 'BB+'. The SRFs are one notch below the sovereign Long-Term IDRs and in line with those of the top-three systemically important banks in the Philippines. Fitch believes that the sovereign would have a strong propensity to provide extraordinary support to DBP and LBP, if needed, given their full government ownership and policy mandates as described in their respective charters. The probability of state support is assessed to be moderate overall, taking into account the sovereign's financial strength as indicated in the sovereign IDR of 'BBB-'. DBP and LBP do not benefit from blanket government guarantees on their liabilities, have received capital support from the state only infrequently on an ad hoc basis and are required to remit dividends to the national government to support the sovereign coffers. These characteristics indicate the two banks' self-sufficient operations, stemming from their largely commercial approach to lending, in our view. The Positive Outlooks on the two banks' IDRs are driven by the Positive Outlook on the Philippines' Long-Term IDR, especially to the extent that it reflects improving sovereign fiscal flexibility. VIABILIY RATINGS The Viability Ratings (VRs) of DBP and LBP stem from their standalone credit profiles. We believe both banks' commercially driven operations underpin their acceptable through-cycle asset-quality performance and profitability even as they fulfil their individual policy roles. The 2015 ratio of pre-provision operating profit to risk-weighted assets for DBP was 2.4% and for LBP was 2.8%, which were comparable to those of privately owned peers. LBP, in particular, has demonstrated relatively healthy asset-quality trends, with a Fitch-defined gross NPL ratio of 1.5% at end-2015 (end-2014: 1.9%). The ratings also take into account the banks' highly concentrated loan books, which may leave them vulnerable to deterioration in any large accounts. For LBP, its exposure to the agricultural sector could also be affected by natural calamities. We believe these risks are mitigated by the banks' loan collateralisation and loss absorption buffers. Regulatory CET1 ratios for DBP and LBP rose to 12.4% and 11.6%, respectively, at end-September 2016 (end-2015: 10.2% for DBP; 10.0% for LBP). This followed capital transfers from the national government to both banks in 2016. These ratios indicate acceptable loss-absorption capacity in our view, and Fitch expects both banks to maintain satisfactory buffers over regulatory minimums in the medium term. Funding and liquidity are relative strengths for DBP and LBP, despite their higher deposit concentration in government-linked accounts. Both banks are predominantly deposit-funded; loan/deposit ratios are low (DBP: 52%; LBP: 40% at end-2015), and non-loan assets are mostly held in cash, central bank deposits and government securities. Both banks benefit from the ability to access Official Development Assistance funding, which are guaranteed by the government for a fee - due to their state links. SENIOR DEBT The ratings on DBP's senior notes are at the same level as the bank's Long-Term IDR. This is because the notes constitute direct, unsubordinated and unsecured obligations of the bank, and rank equally with all its other unsecured and unsubordinated obligations. RATING SENSITIVITIES IDRS, NATIONAL RATINGS, SUPPORT RATINGS AND SUPPORT RATING FLOORS Perceived changes in the sovereign's propensity or ability to extend timely support to DBP and LBP would affect the support-driven ratings. Positive action may result from a more pronounced policy focus by the banks, or more unequivocal indications of support from the national government. The planned merger between DBP and LBP, mandated under the previous administration, will no longer go through under the current government. This removes one area of uncertainty regarding the potential structure and operations of the two banks. A reduction in the government shareholding in either bank could affect the sovereign's propensity to provide support to that bank. For LBP, the Republic Act 10878 that became law by default in mid-2016 allows the issuance of common and preferred shares to non-government shareholders, such as farmer and fisher-folk organisations, cooperatives, development partners, strategic investors and rural banks, although it requires that the national government maintains at least two-thirds ownership of LBP's common shares. Fitch will reassess the likelihood of support for LBP if there is more concrete news of any reduction in the government's stake. An upgrade of the sovereign ratings - currently on Positive Outlook - would likely lead to similar action on DBP's and LBP's SRFs, and in turn their IDRs. Conversely, a revision of the sovereign Outlook to Stable would likely result in corresponding action on the rating Outlooks of the two banks - assuming that all other factors driving sovereign support remain unchanged. VIABILITY RATINGS There is limited room for VR upgrades of DBP and LBP unless they were to de-emphasise their policy roles. This is due to the risk that their policy priorities may impinge on their commercial orientation at some point, possibly as a result of government influence given the banks' state ownership. Significant credit deterioration, resulting in weakened balance sheets, would place pressure on the banks' VRs. SENIOR DEBT Any change in DBP's Long-Term IDR would affect the ratings on its senior notes. The rating actions are as follows: DBP Long-Term Foreign-Currency IDR affirmed at 'BB+'; Outlook Positive Short-Term Foreign-Currency IDR affirmed at 'B' Long-Term Local-Currency IDR affirmed at 'BB+'; Outlook Positive National Long-Term Rating affirmed at 'AA+(phl)'; Outlook Stable Viability Rating affirmed at 'bb+' Support Rating affirmed at '3' Support Rating Floor affirmed at 'BB+' Ratings on senior notes affirmed at 'BB+' LBP Long-Term Foreign-Currency IDR affirmed at 'BB+'; Outlook Positive Short-Term Foreign-Currency IDR affirmed at 'B' Long-Term Local-Currency IDR affirmed at 'BB+'; Outlook Positive National Long-Term Rating affirmed at 'AA+(phl)'; Outlook Stable Viability Rating affirmed at 'bb+' Support Rating affirmed at '3' Support Rating Floor affirmed at 'BB+' Contact: Primary Analyst Elaine Koh Director +65 6796 7239 Fitch Ratings Singapore Pte Ltd One Raffles Quay South Tower #22-11 Singapore 048583 Secondary Analyst Tamma Febrian Associate Director +65 6796 7237 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(phl)' for National ratings in the Philippines. Specific letter grades are not therefore internationally comparable. Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1018701 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below