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Investing.com -- Fitch Ratings has improved the Viability Rating (VR) of BDO Unibank, Inc. to ’bbb-’, up from ’bb+’, and confirmed the Long-Term Issuer Default Rating (IDR) at ’BBB-’ with a Stable Outlook. The Government Support Rating (GSR) also remains at ’bbb-’.
The upgrade in VR reflects BDO’s credit strength, buoyed by an improved operating environment in the Philippine banking sector. Fitch expects the country’s robust economic growth to enhance asset quality and revenue prospects in the near to medium term. BDO’s robust domestic franchise, which generates quality business volume and maintains a leading funding position, also contributes to the VR.
The Philippines’ real GDP growth is expected to rise to around 5.9% in 2025 and 6.2% in 2026, surpassing the median growth of ’BBB’ rated peer markets. This growth rate, supported by lower interest rates and a sustained infrastructure building push, should generate brisk loan demand in the near term.
BDO, holding a 19%-22% share of system loans and deposits, is the largest bank in the Philippines. The bank’s robust domestic franchise and market leadership have enabled it to attract quality customers, better control risks, and sustain resilient profitability through business cycles.
Fitch anticipates BDO’s asset quality metrics to remain stable over the next 12 months, following a moderate improvement in the stage 3 loan ratio in 2024. Improved repayment behavior of corporate borrowers as interest rates decline is expected to offset an incremental rise in problem loans from a higher share of retail loans.
BDO’s funding and liquidity profile is a relative rating strength. Its loan/deposit ratio of 85% and liquidity coverage ratio of 132% as at end-2024 reflect a liquid balance sheet. The bank is primarily funded by customer deposits, with low-cost current and savings accounts comprising 71% of deposits - one of the highest ratios among domestic peers.
The GSR reflects Fitch’s expectation of a high likelihood of sovereign support to the bank, if required, considering the bank’s high systemic importance and the state’s fiscal flexibility.
The Long-Term IDR will only be downgraded if both the VR and GSR are downgraded. The VR could be downgraded due to a material deterioration in BDO’s risk profile, compounded by a decline in core capitalization. The GSR is likely to be downgraded if the sovereign rating is downgraded.
An upward revision of Fitch’s Outlook on the sovereign or a sovereign rating upgrade would likely be mirrored in the Outlook on BDO and its Long-Term IDR, provided the assessment of the state’s propensity to support BDO remains intact. The prospect of another VR upgrade in the near term is limited, given the current upgrade.
BDO’s IDRs are underpinned by the Philippines’ sovereign rating, based on expectations of state support. The operating environment score has been assigned above the ’b’ category implied score, due to positive economic performance and positive reported and future metrics.
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