MOODY’S Investors Service has affirmed the Baa2/Prime 2 investment grade credit rating of state-run Land Bank of the Philippines (LBP), with a stable outlook.
Moody’s has also upgraded the baseline credit assessment (BCA) and Adjusted BCA of LandBank to ba1 from ba2.
In a statement, it said the affirmation of the bank’s deposit ratings of Baa2 takes into account the one-notch upgrade of its BCAs to ba1, and a two-notch uplift to reflect assumption that the bank will receive support from the government in times of need.
“LBP’s Baa2 ratings remain at the same level as the Philippines’ sovereign rating, and incorporate Moody’s assessment of the probability of government support for the bank as ‘government-backed,’ which is in turn underpinned by the bank’s sizable market shares of domestic deposits and loans; full ownership by the Philippine government; and unique public policy role of financing the country’s priority sectors, including small farmers and fishermen; agribusinesses; as well as microenterprises and small and medium-sized enterprises,” it added.
The rating agency said the upgrade of LandBank’s BCA takes into account the bank’s track record of steady asset quality and robust capital and liquidity buffers over the past three years.
In particular, the bank’s asset quality and capital buffers are comparable with those of its peers in the Philippines, it said.
Nonetheless, Moody’s said the bank’s BCA remains lower than that of other Moody’s-rated Philippine banks with BCAs of baa2-baa3, and reflects its relatively weaker risk positioning, due to its high credit concentration to single industry and large borrowers, and weaker financial transparency.
“The bank’s BCA also reflects the stable operating environment for banks in the Philippines, supported by a strong economy, and the private sector’s benign leverage and stable debt servicing metrics,” it said.
The debt watcher said the Philippine bank exhibits strong funding profiles that are dominated by deposits, and demonstrates little reliance on short-term wholesale funding.
However, it said it is unlikely that the bank’s deposit ratings will be positioned higher than the sovereign rating, given the high correlation of credit risk between the bank and the sovereign.
Assuming that LandBank’s credit metrics remain robust, an upgrade of the sovereign rating would likely lead to an upgrade of the bank’s deposit ratings, it added.
“The following factors could result in an upward revision of LBP’s BCA: an improvement in the timeliness and transparency of the bank’s financial reporting; and/or significantly lower credit risk concentration to individual borrowers and industry groups,” Moody’s said.
It also said LandBank’s BCA and, consequently, its ratings could be downgraded if the operating environment weakens significantly or underwriting practices become loose, resulting in a considerable deterioration in the bank’s asset quality; the bank’s nonperforming loans rise without a corresponding increase in loan-loss provisions; or its capital buffer declines materially, as a result of balance-sheet or credit losses.
LandBank reported total assets of P1.48 trillion as at September 30, 2017.