S&P upgrades outlook for BPI from negative

S&P Global Ratings upgraded its outlook for Bank of the Philippine Islands (BPI) to stable from negative on the back of strong capital buffers.

The debt watcher also affirmed the “BBB+” long-term and “A-2” short-term issuer credit ratings of the Ayala-led bank.

“The bank has a solid franchise and leading market position in the Philippines. It has a track record of consistent profitability across economic cycles, and is on a path to recovery from the pandemic,” the S&P said in a statement it issued last Tuesday.

That day, BPI shares fell by 1 percent, or P1, to P99 each amid the 0.70-percent drop for the main index on February 15.

While BPI may deal with some pandemic-induced challenges that can adversely impact its asset quality, S&P said that the bank is ready to “weather residual stress from a position of strength, with good capital and liquidity buffers.”

The credit rating agency said that BPI’s nonperforming loan (NPL) ratio is also better compared to industry average, which shows its “prudent” underwriting and lending practices.

As of December 31, 2021, BPI’s NPL ratio declined to 2.49 percent from peak 2.94 percent in June 2021. Still, this is higher than 1.66 percent prior to the pandemic.

“BPI’s credit costs fell significantly to 0.93 percent in 2021, from 1.96 percent in 2020, in tandem with the industry’s, reflecting improved macroeconomic conditions,” S&P said. “The bank has already covered substantial ground in building up loan loss reserves against a deterioration in asset quality related to the pandemic.”

S&P projects the bank’s risk-adjusted capital ratio to be at 10.5 percent to 11.5 percent in the next two years. The forecast is based on BPI’s tier 1 and total capital ratios of 16.8 percent and 17.6 percent, respectively, as of Sept. 30 last year. Both figures are above the minimum regulatory requirement.

The Ayala-led bank saw its net income increase by 11.5 percent to P23.88 billion last year due to reduced bad loan provisions and improved collection of fee income.

Provisions were 53.1 percent lower to P13.13 billion in the same period, with NPL coverage ratio at 136.1 percent.

This year, the debt watcher expects the banking industry to book higher profits due to higher credit growth, hike in fee income amid more business activities and lower credit costs.

S&P projects credit growth of the sector to reach 5 percent to 7 percent this year due to better economic performance.

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