FITCH Ratings has revised state-owned Land Bank of the Philippines’ (LandBank or LBP) and Development Bank of the Philippines’ (DBP) outlooks to negative from stable following an identical downgrade for the country last week.
The debt watcher affirmed the banks’ long-term issuer default ratings (IDRs) at “BBB,” maintaining their investment-grade status and also kept their government support ratings at “bbb” and Short-Term IDRs at “F2.”
The affirmation of the credit ratings indicated that both DBP and LandBank retained adequate capacity to meet their financial obligations, but the negative outlook signaled that vulnerabilities are building, largely reflecting broader uncertainties surrounding the Philippines’ fiscal position and macroeconomic environment.
Fitch said the outlook revision directly reflected the Philippines’ negative outlook, as the banks’ credit profiles were closely linked due to their policy roles and full state ownership.
“LBP is the implementing agency for agrarian reform, and its policy mandate is to serve the agriculture and fisheries sectors and support rural development,” Fitch said.
“We believe these remain highly relevant policy priorities for the Philippines today, and its broader remit of enhancing financial inclusion to micro, small and medium enterprises takes on increased importance during periods of slower economic growth,” it added.
Fitch added that LandBank had been tasked with additional responsibilities, including supporting other state-owned lenders and contributing seed capital to the sovereign wealth fund, further reinforcing its policy relevance.
The DBP’s policy role, meanwhile, was said to remain “relevant for the country’s economic development, and has been enhanced in recent years.”
“This is evident from its capital contribution to the sovereign wealth fund in 2023, and by ongoing legislative proposals to revise its charter and increase its authorized capital stock,” Fitch said.
Despite these strengths, Fitch said both banks’ ratings remain sensitive to changes in the Philippines’ credit standing.
“A downgrade of the sovereign rating would lead to a downgrade” of the banks’ ratings, it said.
The outlooks could return to stable if the sovereign outlook is similarly revised, provided the government’s willingness and ability to support the banks remain unchanged.
Conversely, a weakening in state support, such as a reduction in government ownership or a diminished policy role, could pressure the ratings. Fitch, however, said such scenarios were unlikely in the near term.
