Fitch improves outlook for PH banking system

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FITCH Ratings revised its operating environment outlook for the Philippine banking system to negative from stable, citing lower pandemic-related risks and continued economic recovery.

The debt watcher, however, kept the issuer default ratings (IDRs) of local banks rated by Fitch at negative, noting that its outlook for the Philippines was also negative.

Earlier this year, Fitch affirmed the country’s “BBB” rating and negative outlook, citing uncertainty over medium-term growth prospects.

The economy grew 8.3% in the first quarter of 2022, Fitch noted in a commentary Tuesday accompanying the release of its “Philippine Banks Peer Review 2022” report, compared with 5.7% in 2021.

“Loan demand has improved in parallel in recent months, and we expect the trend to continue throughout the year despite rising inflation,” he said.

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Banks would also be “well placed to benefit” from Bangko Sentral ng Pilipinas’ decision to raise policy rates, with Fitch pointing to their “favorable asset allocation and deposit structures”.

“Against this backdrop, we have revised the outlook on the banking system’s operating environment from stable to negative,” he said.

“However, the IDR outlook for Fitch-rated Philippine banks is negative, mirroring that of the sovereign. This is because bank ratings are determined by our expectations for sovereign support, as indicated by government support ratings. “

Fitch warned that a sovereign rating downgrade could lead to a similar move in banks’ IDRs.

“Conversely, we may revise the outlook on bank ratings to stable if our outlook on sovereign rating is revised to stable, assuming there is no change in the sovereign’s willingness to extend support.”


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