Moody’s affirms BDO’s investment grade rating

Moody’s Investors Service has affirmed the investment grade rating of BDO Unibank Inc. on the back of a stable outlook.

The debt watcher said the affirmation of the Baa2 deposit and senior unsecured debt ratings of the largest bank in the Philippines reflects the bank’s stabilizing asset quality, strong capital and adequate profitability.

“Funding will remain a key credit strength, underpinned by its extensive deposit franchise as the largest Philippine bank by deposits,” Moody’s said.

According to Moody’s, BDO’s asset quality should continue to benefit from the strong post-pandemic economic recovery in the Philippines as its gross non-performing loans (NPL) ratio improved to two percent last year from 2.9 percent in 2021.

While the recent rapid increase in domestic interest rates to the highest level since the 2008 global financial crisis poses asset risks, Moody’s said the bank’s strong loan loss buffers would cushion the impact.

“The bank’s problem loan coverage was 138 percent as of the end of 2022, which is at a strong level. However, the bank’s significant credit concentration to large domestic corporates, a structural feature of the Philippine banking system, remains a key asset risk,” Moody’s said.

The credit rating agency believes that capital, with a common equity tier 1(CET1) ratio of 13.4 percent in 2022, would remain stable over the next 12 to 18 months as internal capital generation is keeping pace with balance sheet growth and dividends.

Furthermore, it expects the profitability of the bank owned by the Sy family to remain stable over the next 12 to 18 months, driven by a stable net interest margin (NIM).

Funding is a key credit strength, as seen in a very high 79 percent ratio of low-cost current and savings deposits in total deposits as of the end of 2022, and will remain stable over the next 12 to 18 months.