Global credit watchdog Moody’s Investors Service affirmed the “Baa2” investment grade rating of BDO Unibank Inc. with a stable outlook on Thursday, taking into account its stabilizing asset quality, strong capital and adequate profitability.
Moody’s said in a statement BDO’s funding would remain a key credit strength, underpinned by its extensive deposit franchise as the largest Philippine bank by deposits.
“BDO’s asset quality should continue to benefit from the strong post-pandemic economic recovery in the Philippines. Its gross non-performing loans ratio at the end of 2022 declined to 2.0 percent from 2.9 percent a year earlier while other asset quality indicators such as net NPL formation and stage 2 loans ratio have also improved,” Moody’s said.
It said that while the recent rapid increase in domestic interest rates to the highest level since the 2008 global financial crisis poses asset risks, 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,” it said.
Capital, with a common equity tier 1ratio of 13.4 percent as of the end of 2022, will remain stable over the next 12 to 18 months as internal capital generation will likely keep pace with balance sheet growth and dividends.
It said BDO’s exposure to interest rate risk in its hold-to-collect securities is moderate, with the difference between the carrying value and fair value of these securities being around 10 percent of its CET1 capital as of the end of 2022.
Moody’s expects the bank’s profitability to remain stable over the next 12 to 18 months, driven by a stable net interest margin.
Given BDO’s systemic importance, Moody’s continues to assume a very high level of public support in the bank’s ratings.
BDO’s net income climbed 33.4 percent to a record P57.1 billion in 2022 from P42.8 billion in 2021 on the sustained strength of core businesses despite the challenging business environment highlighted by higher interest rates and elevated inflation.