Debt-watcher Fitch Ratings affirmed its “BB” rating on three Philippine banks, a notch below investment grade, based on the viability of their long-term issuer default (IDRs) ratings.
Fitch named the three banks in a statement as China Banking Corp., Security Bank Corp. and Rizal Commercial Bank Corp. (RCBC).
The ratings firm noted that the IDRs of the three Philippine banks, as well as the national ratings of China Bank and Security Bank are driven by their viability ratings (VR), which also stand at “BB.”
“The ratings reflect their higher risk appetite, adequate capitalization, sound funding and liquidity, and their small, yet meaningful market shares,” it said.
The VRs also took into account structural issues within the local banking system, including concentrated loan portfolios, conglomerate/family ownership and developing corporate governance standards.
“The stable outlooks on all three banks reflect Fitch’s view that their financial profiles [are]likely to remain steady over the near to medium term in light of sustained economic growth, a fairly conservative regulatory environment, and sufficient funding and liquidity in the system that is supported by strong inflows from overseas workers,” it said.
Fitch said it also expects the three banks to continue expanding their branch networks to support deposit and loan growth, and see them possibly undertaking acquisitions to enhance their franchises and market positions.
“Loans growth is likely to stem from infrastructure and power projects and the SME and consumer segments, which are higher-yielding and underpenetrated,” it said.
Fitch believes the system loan growth of the banks may slow from the fast pace seen in 2011-2014 (17 percent on average a year) given external headwinds— arising from slower global growth, rising interest rates and the risk of weaker-than-expected growth in
China—and regulatory changes announced in 2014 aimed at strengthening the banks’ underwriting practices and cooling down the real estate sector.
“The ratings also capture Fitch’s expectation that the banks will maintain sound capital buffers to balance loan growth and potential loan deterioration,” it said.
Lastly, Fitch said the banks in this peer group would qualify as domestic systemically important banks (D-SIBs) and would have to maintain a minimum common equity tier 1 ratio of 10 percent by January 2019, a requirement which all three banks already comfortably meet.