Fitch Ratings has upgraded two Philippine banks on the back of their reduced non-performing assets (NPAs) and their capacity on loss-absorption.
In a report over the weekend, Fitch said its outlook for Rizal Commercial Banking Corp. (RCBC) was changed to stable. It has upgraded RCBC’s long-term issuer default ratings (IDRs) to ‘BB’ from ‘BB-‘ and its viability rating (VR) to ‘bb’ from ‘bb-‘.
“The upgrade of RCBC also takes into account the already positive impact on its credit profile from several initiatives, including fresh capital and bulk NPA sales in H113 [first half of 2013],” it stated.
The ratings agency also revised Union Bank of the Philippines’ (UnionBank) outlook from stable to positive affirmed its IDRs at ‘BB-‘ and VR at ‘bb-‘.
“UnionBank’s Positive Outlook reflects Fitch’s view that benign domestic operating conditions and ongoing recovery efforts should over time support its ability to manage down its NPAs to a level more comparable with higher-rated domestic peers,” it added.
The agency said the two banks reflect Fitch expectations that their financial metrics will become comparable with the industry.
Fitch has also affirmed the ratings of two more Philippine banks–China Banking Corporation (China Bank) and Security Bank Corporation (Security Bank)–including their long-term IDRs at ‘BB’ and VR at ‘bb’. The outlook for the two banks are stable.
“The VRs and IDRs, as well as the National Ratings of the four Philippine banks reflect their strong core capitalisation, improving loan loss reserves, as well as their sound funding, liquidity and domestic franchises as medium-sized players,” it stated.
Fitch added that the stable outlooks on China Bank, Security Bank and RCBC reflect Fitch’s expectation that they will largely maintain steady credit profiles over the near- to medium-term, underpinned by a buoyant domestic economy, manageable corporate leverage and low interest rates.
“Lending activities and fee-based income growth are backed by domestic demand, with rising overseas remittances and business process outsourcing countering the fragile global economy,” it said.
This backdrop, alongside strong foreign inflows, is likely to increase credit activities and asset prices in the Philippines, according to Fitch.
“However, based on Fitch’s own stress-testing, most major Philippine banks are in a reasonably strong position to weather deterioration in the operating environment, due to their sound funding and loss-absorption capacities. Moreover, recent records of the domestic regulator suggest that prudential measures may be implemented to counter potential macroeconomic shocks, such as from corporate leverage and sector concentration,” it said.
MAYVELIN U. CARABALLO