OREANDA-NEWS. Fitch Ratings has affirmed the ratings on two major Philippine banks - Bank of the Philippine Islands (BPI) and Metropolitan Bank & Trust Company (Metrobank). The two banks' Long-Term Issuer Default Ratings (IDRs) were affirmed at 'BBB-' with Stable Outlooks.

At the same time, the agency has upgraded BDO Unibank, Inc.'s Long-Term IDR to 'BBB-' from 'BB+', and its Viability Rating (VR) to 'bbb-' from 'bb+'. The Outlook on the ratings is Stable.

These ratings take into account the steady improvement in the Philippine operating environment over the last several years. Philippine GDP growth has been one of the strongest in the Asia-Pacific region over the past five years, and the economy has proven relatively resilient amid greater global uncertainty recently. We expect the market to be more insulated from weaker China growth compared to many of its neighbours in the region.

We believe that developments in domestic banking regulation over the years have also strengthened the overall prudential framework. This should help to protect the system against vulnerabilities, which, in the near term, could stem from a potential slowdown in property market activity.

Long-standing structural weaknesses, some of which the authorities have addressed, include family control and conglomerate ownership of the major banks that give rise to related party lending, the unavailability of real-estate market statistics and relatively underdeveloped financial markets.

Fitch expects the steady improvement in the Philippine operating environment to benefit banks' asset-quality profiles through the cycle. This view, combined with our assessment of BDO's franchise strengths and our expectation that the bank will maintain its capitalisation in line with peers, contributes to the upgrade of BDO's ratings. BDO's Short-Term IDR and senior debt ratings have been upgraded in tandem.

A full list of rating actions is at the end of this rating action commentary.


The IDRs of all three banks and National Long-Term Ratings of BPI and BDO are driven by the banks' VRs. We assign a higher National Rating to BPI to reflect its stronger intrinsic profile.

The banks' broad branch networks and strong deposit franchises underpin their stable funding and liquidity profiles, which are key rating strengths - in particular for BPI. In addition, Fitch expects sustained remittance inflows and service export receipts to support domestic liquidity as well as banks' access to foreign currency.

BPI's ratings reflect its sound balance sheet and steady financial performance over the years. The bank's funding and liquidity metrics exceed those of peers with current and savings accounts (CASA) comprising a significant 72% of total deposits (BDO: 68%, Metrobank: 56%), and the loan/deposit ratio was a modest 70% at end-2015 (BDO: 77%, Metrobank: 70%). BPI's asset quality is underpinned by its established risk culture and blue-chip clientele, and the bank's healthy profitability and capitalisation provide a substantial buffer against credit shocks. Its capitalisation compares well with peers', with a Fitch Core Capital ratio (FCC) of 14.5% at end-2015 and a common equity Tier 1 (CET1) ratio of 12.7%.

Metrobank's ratings are supported by its improved asset quality backed by prudent underwriting standards and controls, adequate capital ratios and a stable funding profile. The bank's NPL ratio remained steady at 0.99% at end-2015 while its loan growth was close to the higher end of the peer group at 16% in 2015 (BDO: 17%, BPI: 9%). Its FCC and CET1 ratios, 16.4% and 14.2%, respectively, benefited from a PHP32bn equity-raising in early 2015.

BDO's NPL ratio continued to improve, to 1.2% of gross loans at end-2015 (end-2014: 1.5%), which we believe is close to its cyclical low. Against this backdrop, Fitch assesses that BDO's capitalisation still provides a satisfactory buffer. Its FCC ratio slipped to 11.9% in 2015 from 12.8% in 2014, and CET ratio fell to 11.4% from 12.2%. The ratios are the lowest in the peer group and Fitch expects management action to lift the bank's capital buffers in the near to medium term.

Barring any capital management measures, the three banks' capital positions are likely to decline over time amid strong loan demand. In this environment, Fitch expects the banks to take action from time to time to maintain healthy capital buffers above regulatory requirements. Capital requirements for domestic systemically-important banks will be phased in over 2017-2019, and we believe the three banks - the largest in the Philippines - will need to hold CET1 of at least 11.0% of risk-weighted assets by January 2019.

The Stable Outlooks on BPI, Metrobank and BDO reflect Fitch's expectation that their risk profiles will remain steady over the next 12 to 18 months.

The Support Ratings (SRs) and Support Rating Floors (SRFs) of BPI, BDO and Metrobank are each at '3' and 'BB+' respectively, and reflect Fitch's expectation of a moderate likelihood of extraordinary state support for the banks, if needed.

We believe the three banks are each of high significance to the domestic economy and banking system, and the sovereign would likely have a high propensity to provide support to these three banks. However, Fitch assesses the overall likelihood of support to be moderate after taking into account the sovereign's fiscal position, as indicated by the sovereign IDR of 'BBB-'.

BDO's senior notes are rated at the same level as its 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.

The ratings on BDO's senior debt have been upgraded to 'BBB-' following the upgrade in BDO's ratings.


Positive action may arise from stronger profitability, which would provide support to capital generation amid expected periods of stronger loan growth. Lower loan and deposit concentration, steady enhancements to banks' risk management cultures and further strengthening of the operating environment would also be positive for ratings.

Downward rating action may result from a material increase in the banks' risk appetites. This may be apparent in rapid balance sheet growth or excessive borrower or sector concentrations, without a corresponding improvement in the banks' risk controls and loss absorption buffers. For BDO, the ratings may be downgraded if the bank falls behind peers when building its capital buffers as regulatory requirements rise.

Fitch notes that inappropriate pricing for risk would also weaken banks' profitability and hence their ability to absorb moderate fluctuations in asset quality. Significant asset-quality risk, potentially resulting in weaker capital or funding and liquidity positions could also lead to negative action.

The SRs and SRFs are sensitive to perceived changes in the sovereign's propensity or ability to provide extraordinary support to the banks. The SRFs may be raised following positive rating action on the sovereign, which is on Positive Outlook. This is assuming our assessment of the sovereign's propensity to extend support to the banks is maintained.

The regulator has required all domestic systemically-important banks to submit recovery and resolution plans, to prepare for the possibility of a large bank failure. A more manageable cost of failure - potentially as a result of more robust resolution plans - may reduce the sovereign's propensity to provide extraordinary support in times of stress, although we do not see a high probability of this in the near term.

Any change in BDO's IDR would affect the issue ratings.

The rating actions are as follows:

Long-Term Foreign-Currency IDR affirmed at 'BBB-'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F3'
Long-Term Local-Currency IDR affirmed at 'BBB-'; Outlook Stable
National Long-Term Rating affirmed at 'AAA(phl)'; Outlook Stable
Viability Rating affirmed at 'bbb-'
Support Rating affirmed at '3'
Support Rating Floor affirmed at 'BB+'

Long-Term Foreign-Currency IDR upgraded to 'BBB-' from 'BB+'; Outlook Stable
Short-Term Foreign-Currency IDR upgraded to 'F3' from 'B'
Long-Term Local-Currency IDR upgraded to 'BBB-' from 'BB+'; Outlook Stable
National Long-Term Rating affirmed at 'AA+(phl)'; Outlook Stable
Viability Rating upgraded to 'bbb-' from 'bb+'
Support Rating affirmed at '3'
Support Rating Floor affirmed at 'BB+'
Ratings on senior notes upgraded to 'BBB-' from 'BB+'

Long-Term Foreign-Currency IDR affirmed at 'BBB-'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F3'
Long-Term Local-Currency IDR affirmed at 'BBB-'; Outlook Stable
Viability Rating affirmed at 'bbb-'
Support Rating affirmed at '3'
Support Rating Floor affirmed at 'BB+'