Fitch Ratings has revised the Outlook on Bank of the Philippine Islands' (BPI) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to Stable from Negative and affirmed the Long-Term IDRs at 'BBB-'.

At the same time, Fitch has affirmed the bank's Government Support Rating (GSR) at 'bbb-'.

This rating action follows a similar revision in the Outlook on the Philippines' sovereign rating to Stable from Negative, which reflects Fitch's improved confidence that the Philippines is returning to strong medium-term growth after the Covid-19 pandemic, supporting sustained reductions in government debt/GDP after a substantial increase in recent years. For more details, see 'Fitch Revises Outlook on Philippines to Stable; Affirms at 'BBB'', published on 22 May 2023.

The bank's Viability Rating (VR) was not part of this review, as we believe there have been no significant developments in its financial performance since we last reviewed the VR on 18 April 2023. The ex-government support ratings are also unaffected by this review.

Key Rating Drivers

Sovereign Changes Drive Outlook Revision: BPI's Long-Term IDRs are driven by Fitch's expectation of a high likelihood of sovereign support to the bank in times of need. This is also reflected in its GSR of 'bbb-', which is a one notch lower than the 'BBB' sovereign rating. Our view takes into consideration BPI's high systemic importance as one of the top three largest privately-owned banks in the Philippines with a market share of around 12% in system deposits, and the state's improving fiscal flexibility, as reflected in the revision of the sovereign rating Outlook to Stable.

The Short-Term IDR has also been affirmed at 'F3', in line with the affirmation of the Long-Term IDRs.

VR Unaffected: The bank's VR is not affected by this development and we believe it will continue to benefit from the resilient economic momentum in the next 12-18 months. We project the bank's profitability to continue improving, on account of higher margins and sustained loan growth.

For more details on the key rating drivers and sensitivities of the bank's VR, see 'Fitch Affirms Bank of the Philippine Islands at 'BBB-'; Outlook Negative', published on 18 April 2023.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A revision in the sovereign rating Outlook or a downgrade of the sovereign rating is likely to lead to a similar revision in the bank's Outlook and/or IDRs.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

A revision in the sovereign rating Outlook or an upgrade of the sovereign rating is likely to lead to a similar revision in the bank's Outlook and/or IDRs, provided our assessment of the state's propensity to support BPI remains intact.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

BPI's IDRs are driven by sovereign support and are linked to the Philippines' sovereign rating.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

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