DBP, Landbank outlooks revised to ‘negative’

FITCH Ratings, Inc. has revised the outlooks on state-owned Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LANDBANK) to “negative” from “stable,” aligning both lenders with the sovereign outlook while affirming their “BBB” long-term issuer default ratings.

The rating action reflects increased risks to the sovereign credit profile, which directly anchors both banks’ ratings due to their full government ownership and policy mandates.

DBP’s outlook revision was accompanied by affirmations of its “BBB” rating, “F2” short-term rating and government support rating of “bbb,” while its standalone viability rating was affirmed at “bb” and withdrawn as no longer relevant to Fitch’s assessment framework.

Fitch said DBP’s ratings remain driven by expected state support rather than its standalone financial strength, citing the government’s strong ability and willingness to provide extraordinary assistance if needed.

The bank’s role as a development finance institution was also highlighted, particularly its mandate to support infrastructure and industrial development. Fitch noted DBP’s participation in state-led initiatives, including capital contributions linked to the sovereign wealth fund and ongoing efforts to expand its capital base.

DBP’s 100% state ownership and policy function were key factors underpinning expectations of support.

Separately, Fitch said LANDBANK’s outlook revision reflects similar considerations, with the lender also viewed as a core policy arm of the government. LANDBANK plays a central role in rural development financing, agricultural lending and support for government programs.

Both institutions’ ratings are equalized with the Philippines’ sovereign rating, meaning any downgrade of the sovereign would directly translate into lower ratings for the two banks.

Fitch said a downgrade of DBP or LANDBANK could also occur if the agency sees a reduced propensity of government support, such as through dilution of state ownership or weakening of their policy roles. However, it added that such scenarios are unlikely in the near term.

Conversely, a return to a stable outlook for the sovereign would likely lead to a similar revision for both banks, assuming no change in support assumptions. Any upgrade, however, would depend on an improvement in the sovereign rating, which Fitch said is not expected in the near term given the negative outlook.

Fitch also affirmed both banks’ senior unsecured debt ratings at “BBB,” in line with their issuer default ratings, reflecting equal ranking with other unsubordinated obligations.

Environmental, social, and governance considerations were assessed as credit-neutral for both institutions, with no material impact on the rating decisions. — Norman P. Aquino