PNB’s ‘BB’ rating reflects weak asset quality – Fitch

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FITCH Ratings on Tuesday said it had given Philippine National Bank (PNB) a “BB” long-term issuer default rating given weakness in the local bank’s asset quality and profitability. The outlook for the rating was nonetheless stable.

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Fitch said PNB’s financial profile would likely remain steady over the near to medium term “in light of resilient domestic economic growth, a fairly conservative regulatory environment, and sufficient funding and liquidity in the system…”

In a statement, the debt watcher said the “BB” rating for PNB reflected the bank’s weaker asset quality and profitability compared with local peers, partly mitigated by the bank’s higher capital ratios and a stable-to-improving operating environment.

The ratings agency said noted a non-performing loans (NPL) ratio of 2.75 percent at end-June and NPL reserve coverage of 59 percent at end-2014. In addition, the bank’s loan concentration to large borrowers was said to be high, typical for Philippine banks.

Fitch said PNB’s profitability had also been weighed down by historically higher impairment charges and cost-to-income ratio relative to peers.

On a positive note, the debt watcher said PNB’s capital ratios remain higher than those of Fitch-rated peers and provide a satisfactory buffer against potentially higher credit costs.

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