MANILA, Philippines – The financial strength of BDO Unibank Inc., the main banking unit of the SM Group, remains stable, international credit rating firm Moody’s Investors Service said.
In a statement, Moody’s said it affirmed BDO’s Baa3/Prime-3 deposit rating with a positive outlook.
“BDO’s bank financial strength rating (BFSR) is also affirmed at D+. The outlook remains stable,” it said.
At the same time, Moody’s revised BDO’s baseline credit assessment (BCA) to baa3 from ba1 to reflect improvements in its stand-alone credit profile, justifying investment grade on a stand-alone basis.
According to Moody’s, it affirmed the BDO deposit rating with a positive outlook to reflect its expectation of continued strength in the operating environment for the Philippine banking system, owing to robust growth of the Philippine economy and stabilizing external conditions, which is positively supporting the government’s own credit profile.
The revision of BDO’s BCA to baa3 from ba1, on the other hand, took into consideration the banks’ consistently improving asset quality, as well as robust liquidity and capital profiles, which have become comparable to those of its closest peers in the Philippines and other baa3 banks in the region.
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“In line with our expectation of an improved operating environment, Philippine banks, particularly BDO — given its dominance in the domestic corporate and middle markets segments — will likely benefit from healthy credit growth, core profitability, as well as stable asset quality,” it stressed.
Furthermore, Moody’s said it viewed the credit profile of BDO to be relatively predictable and well positioned to withstand a cyclical downturn among Moody’s rated banks in the Philippines.
Moody’s said that given the positive outlook on BDO’s deposit ratings, an upgrade of the sovereign rating would likely lead to an upgrade of the bank’s deposit ratings, assuming the bank’s own credit metrics remain robust.
The credit rating firm noted several factors that could result in an upward revision of BDO’s BCA. These are: reduction of its non-performing assets (non-performing loans and foreclosed assets) to below 15 percent of equity and loan loss reserves; evidence that it can continue to rein in credit costs and improve its risk-adjusted profitability, reflected by net income above 2.5 percent of average risk-weighted assets; and/or high level of loss absorption capacity, reflected by its maintenance of its Tier 1 ratio above 12 percent.
However, Moody’s warned that the bank’s ratings could be downgraded or the positive outlook on the bank’s deposit and debt ratings could be revised to stable if aggressive organic expansion or acquisitions result in a significant increase in its risk profile.
It said BDO’s rating would also be adjustment downward the operating environment weakens significantly, or underwriting practices become loose, resulting in non-performing assets increasing to more than 20 percent of equity and loan loss reserves; and/or a material decline in its capital buffer, such that its Tier 1 ratio falls below 10 percent.
BDO, the country’s largest bank, has total assets of P1.7 trillion ($38 billion) as of end-December 2013.
