THE establishment of credit bureaus and improved overall loan management of the Philippine banking sector pulled the ratings of two banks upward, S&P Global Ratings said.
The credit watcher confirmed in its recent statement a “more improved” Philippine profile after their most recent assessment.
In particular, the Philippine banking system has been recategorized into “Group 6” from earlier “Group 7” in their Banking Industry Country Risk Assessment (Bicra) on the country.
As a result, the credit watcher said two local banks benefitted from the category adjustment.
S&P upgraded Security Bank Corp. to “BBB-“ from “BB+” on the expectation the reduced credit risk in the Philippines will “strengthen the bank’s capital position” and “provide a solid buffer against potential losses” with a stable outlook.
“The stable outlook on Security Bank reflects our view that the bank will maintain its strong capital buffers and good asset quality over the next two years,” the S&P said. “We could lower the ratings if a rapid credit expansion substantially weakens the bank’s funding profile or pushes its RAC [risk-adjusted capital] ratio to below 10 percent. We do not see any upside potential to the rating over the next two years.”
S&P also revised the Development Bank of the Philippines’s (DBP) stand-alone credit profile to “bb” from “bb-.”
The Bicra economic-risk and industry-risk scores are on a scale from 1 (lowest risk) to 10 (highest risk).
The movement in the industry’s category means the Philippine banking sector reduced significantly its credit risk and improved its credit fundamentals.
“In our view, the credit risk facing Philippine banks has reduced with the establishment of credit bureaus and banks’ improving underwriting practices in the consumer loans segment,” S&P said in a statement.
“We have, therefore, revised our Bicra assessment on the Philippines to Group 6, from Group 7. At the same time, we revised the economic-risk trend to stable from positive,” it added.
S&P made particular mention of the establishment of the government-led Credit Information Corp., a centralized credit registry that has been collecting and cleaning five-year data on the credit history of borrowers.
“Better data availability of credit history is positive for this segment where credit quality has historically been constrained by lack of information. In our view, clarity on creditworthiness should foster risk-based pricing in the segment. We believe this will strengthen the underwriting standards in consumer lending and, over the long-term, better transparency should lower consumer nonperforming loans closer to the overall banking system NPLs,” S&P said.
“We believe the improvement in credit fundamentals of the Philippine banking system will have a positive influence on DBP’s creditworthiness. We see an almost certain likelihood that the Philippine government will provide timely and sufficient extraordinary support to the bank if needed,” the S&P said.
“Therefore, the issuer credit ratings on DBP are equalized with the sovereign credit ratings on the Philippines [BBB/Positive/A-2],” it added.