Fitch Ratings has revised the outlooks on two major state-owned Philippine banks – Land Bank of the Philippines (Landbank) and Development Bank of the Philippines (DBP) – to "negative," mirroring a similar downgrade on the country's sovereign credit outlook. The move reflects heightened pressure on the government's capacity and willingness to support these lenders.
In a commentary released Tuesday, the London-based credit rating agency noted that the government support ratings (GSR) for both banks are aligned with the sovereign rating. Consequently, a negative sovereign outlook could limit the government's ability to prioritize backing for these institutions, especially amid rising subsidy demands to mitigate the effects of the oil shock.
Landbank, which holds about 14% of the banking system's deposits, is tasked with supporting the agriculture and fisheries sector and promoting rural development. DBP focuses on industrial development and infrastructure financing.
Despite the outlook revision, Fitch affirmed the long-term issuer default ratings (IDRs) of both banks at "BBB" and maintained their viability ratings (VRs) at "bb." However, the agency withdrew the VRs, stating they are no longer relevant to its coverage.
"The GSR and long-term IDRs could also be downgraded if Fitch believes there is a material reduction in the sovereign's propensity to support the entity," the ratings firm said. "This could occur if there is a material dilution in the state's ownership of the bank, or if the banks' policy roles were to diminish materially or be transferred to other institutions. However, we believe both scenarios are unlikely in the near term."
Fitch added that an upgrade in the near term is improbable given the negative sovereign outlook. Any improvement in the banks' outlooks would necessitate a similar revision in the sovereign rating.
The announcement follows Fitch's decision last week to lower the Philippines' sovereign outlook to "negative" from "stable," citing energy shocks from the Middle East conflict and disruptions in public spending linked to a major graft scandal. The shift signals a higher likelihood that the country's "BBB" investment-grade rating could be downgraded within the next one to two years, potentially marking the Philippines' first credit rating downgrade in over two decades.