ABS-CBN News: Fitch on RP banks: Very risky

Fitch on RP banks: Very risky
By DAXIM LUCAS
TODAY Senior Reporter

The local banking industry continues to face significant risks owing to stagnant credit demand and a high level of nonperforming assets, according to the latest assessment of international debt watcher Fitch Ratings.

As a result, Fitch has downgraded the ratings of three local banks including that of the country’s largest lender, Metropolitan Bank and Trust Co.

In a statement, Fitch announced that it cut Metrobank’s long-term foreign currency rating to “BB minus” with a “negative” outlook from its previous rating of “BB” with a “stable” outlook.

Metrobank is the country’s largest financial institution with over P107 billion in assets under management as of last year. Its large portfolio masks, however, an underlying problem with asset quality‚ caused by aggressive lending policies—which became obvious only in the aftermath of the 1997 East Asian financial crisis.

Fitch also downgraded Metrobank’s so-called individual rating to “D/E” from “E” reflecting the credit watcher’s opinion of the bank’s riskiness.

According to Fitch, individual ratings attempt to assess how a bank would be viewed if it were entirely independent and could not rely on external support. “These ratings are designed to assess a bank’s exposure to, appetite for, and management of risk, and thus represent our view on the likelihood that it would run into significant difficulties such that it would require support,” it said on its website.

Fitch maintained, however, Metrobank’s so-called support rating at “3” which represents its view on the ability of the bank’s shareholders to bail out the institution in the event of sudden financial shocks.

Observers note that Metrobank’s multiple downgrade at the hands of an influential debt watcher cements the role of rival Bank of the Philippine Islands as the country’s leading financial institution in terms of asset quality, although not in terms of asset size.

At the same time, Fitch also downgraded the individual rating of the Rizal Commercial Banking Corp. (RCBC) to “D/E” from “D” while putting its long-term foreign currency rating of “BB minus” on a “negative” outlook.

RCBC’s support rating was affirmed at “3.”

Fitch also downgraded the Philippine National Bank’s (PNB) individual rating further to “E”from “D/E” while affirming its support rating at “3.” PNB continues to struggle in its rehabilitation plan after suffering a massive bank run during its troubled privatization in 2000.

Also subjected to lower ratings were Equitable-PCI Bank and midsized lender Security Bank Corp., both of which were put on “negative” outlooks in sympathy with the outlook of the Philippine government.

RATING THE BANKS

Fitch’s “negative” outlook on RP prompts broader downgrade of local corporates.

Metrobank’s risk rating cut to “BB minus” with a “negative” outlook

RCBC risk rating cut to “BB minus” with a “negative” outlook

Equitable-PCI’s risk rating of “BB” reduced to “negative” outlook

PNB’s individual rating downgraded to “E” from “D/E”

Security Bank’s risk rating of “BB” also placed on “negative” outlook

BPI now the undisputed leader among local banks in terms of asset quality

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Prudent Investor says: With these downgrades, the banking sector is unlikely to attract foreign money, probably except for a few (Banco De Oro, Bank of the Philippines Islands, perhaps) which also means they are unlikely to lead the market for the year 2005.