FITCH RATINGS upgraded state-owned Land Bank of the Philippines (Landbank) and Development Bank of the Philippines (DBP) to a notch above the minimum investment grade after reassessing the government’s capability to support the lenders.

The long-term issuer default ratings (IDRs) of Landbank and DBP were upgraded by a notch to “BBB” from the minimum investment grade of “BBB-” given last month, with a “stable” outlook.

In a statement last Friday, Fitch said the IDR upgrades of Landbank and DBP stemmed from its “reassessment of the government’s propensity to support the banks,” which led to the upgrade of the banks’ support rating floors (SRFs) as well.

IDRs are being issued by Fitch to economies and financial institutions such as banks and insurers to assess the capability of the entity to pay its financial obligations.

Fitch said in its statement that the lender’ roles appear to have been expanded and were made clearer after the pronouncements of President Rodrigo R. Duterte’s administration.

“This raises our expectations for the state to provide support to the banks in times of need to enable them to carry out their objectives in support of government policy,” Fitch said.

Two weeks ago, Overseas Filipino Bank (OFB) was launched after Landbank absorbed the state-owned Philippine Postal Savings Bank in late 2016, and was ordered to be converted into OFB.

The government has also previously proposed to make DBP the country’s infrastructure bank.

“Both declarations are in line with the administration’s policy agenda, which includes improving the nation’s infrastructure base and better catering to the needs of overseas Filipinos,” Fitch said.

Meanwhile, Fitch said negative rating actions could arise should the government reduce its ownership in the banks or its mandated roles diminish — something Fitch sees as “unlikely in the near term.” — KANV

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