BANK OF THE PHILIPPINE ISLANDS
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of
Its Outlook is Negative, in line with the Outlook on
Fitch is withdrawing BPI's Support Rating and Support Rating Floor as they are no longer relevant to the agency's coverage following the publication of our updated Bank Rating Criteria on
Key Rating Drivers
State Support: BPI's IDRs are driven by our expectation of a high likelihood of sovereign support to the bank in times of need. This is also indicated by its GSR of 'bbb-'. Our view balances the bank's high systemic importance, indicated by its market share of 12% in system deposits, with the state's moderate but weakening fiscal flexibility, reflected in the 'BBB'/Negative sovereign rating.
BPI's VR reflects its standalone credit strength. The rating considers its healthy capital buffers and strong domestic franchise, which has benefitted its funding profile and helped the bank attract higher quality customers than industry average over the years. The rating also factors in subsiding risks in the operating environment and our expectation that the bank will resume its appetite for growth as economic conditions normalise.
Recovering Economy: We expect the economy's recovery momentum to be sustained with GDP growth of 6.0% in 2022 and 6.2% in 2023 after growth of 5.7% in 2021. We continue to see uncertainty over the economy's medium-term growth trajectory, but the rebound should temper asset quality risks and support the bank's financial performance in the near term. We have therefore revised the outlook on the operating environment for Philippine banks to stable from negative.
Leading Domestic Franchise: BPI is the fourth-largest bank in
Stabilising Asset Quality: BPI's Stage 3 loan ratio declined to 3.6% by end-2021 from 4.2% at end-2020 amid the improving economy. Its regulatory non-performing loan (NPL) ratio has also improved in recent quarters, which we expect to be sustained over the next 12-18 months as economic activity gathers momentum. Nevertheless, we expect its NPL ratio to remain higher than pre-pandemic levels in the near term and have thus affirmed the bank's asset quality at 'bb'/stable.
Profitability to Rise Modestly: We expect impairment charges to further taper amid the better economic outlook, while revenue should be buoyed by faster loan growth and rising margins. These are likely to be offset by continued investments in infrastructure and IT, suggesting that improvements in its risk-adjusted returns are likely to be moderate in the near term. We have thus affirmed its earnings and profitability score at 'bb'/stable.
Healthy Capital Buffers: We have affirmed the bank's capitalisation and leverage score at 'bb+'/stable. Its common equity Tier 1 (CET1) ratio of 16.2% at
Generally Stable Funding Profile: BPI's funding profile is its rating strength. The 81% share of low-cost current and savings accounts in its deposit base at
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade in the sovereign rating is likely to lead to a downgrade in the bank's IDR and GSR.
We believe the bank has sufficient headroom in its VR to withstand moderate deterioration in its financial profile. Nevertheless, we may downgrade the bank's VR if a combination of the following scenarios were to occur:
The bank's impaired-loan ratio rises and stays above 4% over a prolonged period
Its CET1 ratio falls below 14% on a sustained basis
Excessive growth in higher risk sectors, such as unsecured retail or SMEs, without commensurate improvement in loss absorption buffers.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A revision in the Outlook on the sovereign rating to Stable is likely lead to a corresponding revision of the Outlook on the bank's IDR, provided our assessment of the state's propensity to support BPI remains intact.
Stronger and sustained economic performance that leads us to revise the banking system operating environment to the 'bbb' category could be positive to its VR, provided its asset quality and risk-adjusted profitability return to their pre-pandemic levels.
VR ADJUSTMENTS
The operating environment score has been assigned above the 'b' category implied score because of the following adjustment: sovereign rating (positive).
The business profile score of 'bbb-' has been assigned above the 'bb' category implied score because of the following adjustment reason: market position (positive).
The funding and liquidity score of 'bbb' has been assigned above the 'bb' category implied score because of the following adjustment reason: deposit structure (positive).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
BPI's IDRs are driven by sovereign support and are linked to the Philippine sovereign rating.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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