The credit watcher Fitch Ratings has upgraded the credit stature of two state-owned financial institutions on the back of the government’s perceived commitment to support the lenders in the worst of times.
In a statement, Fitch Ratings said it upgraded the long-term issuer default ratings (IDRs) of state-owned Development Bank of the Philippines (DBP) and LandBank of the Philippines (LandBank) both from “BBB-” to “BBB.”
Fitch assigned a stable outlook on both, meaning the new ratings will likely hold and that no significant changes on them both in the next 12 to 18 months.
The government banks’ IRD boost came on the heels of the upward revision of their support rating floors (SRFs).
“The SRF revisions stem from a reassessment of the government’s propensity to support the banks and follow their rating upgrades in December 2017 to ‘BBB-’ from ‘BB+’, reflecting the Philippine sovereign’s greater capacity for support,” Fitch said.
Fitch upgraded the country’s sovereign rating to “BBB” from “BBB-” in December 2017.
“The banks’ roles appear to have been expanded and future roles made clearer after pronouncements by the administration of President Duterte, even though there have been no changes in their state ownership, systemic importance or broader mandates,” the credit watcher said.
“This raises our expectations for the state to provide support to the banks in times of need to enable them to carry out their objectives in support of government policy,” it added.
Fitch also welcomed the LandBank’s absorption of the smaller, state-owned Philippine Postal Savings Bank and conversion into the Overseas Filipino Bank.
The government earlier proposed to repurpose the DBP as an infrastructure bank.
“Both declarations are in line with the administration’s policy agenda, which includes improving the nation’s infrastructure base and better catering to the needs of overseas Filipinos,” Fitch said.