Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of
Fitch has also affirmed the Long-Term IDR of BSP's wholly owned
Key Rating Drivers
BSP
Stable Credit Profile: BSP's Long-Term IDR is driven by its VR, which is in line with the implied rating. Its ratings and the Stable Outlook reflect Fitch's expectation that the bank will have a consistent risk profile and maintain adequate loss-absorption buffers amid a stable operating environment.
Stable Operating Environment: The operating environment score of 'a' with stable outlook takes into consideration
Moderate Risk Profile: BSP's risk profile score of 'bbb+' reflects its moderate risk profile, underpinned by its large residential secured loans portfolio, low borrower and sector concentration, and modest mainland
Asset-Quality Risk Manageable: We expect a modest rise in BSP's impaired-loan ratio in 2023 (0.4% at end-3Q23), mostly from relief lending and offshore exposures. The relief lending limit was around 7% of its total loans at end-3Q23, but we expect the actual amount to be much lower. BSP has a moderate loan/value ratio for its mortgage loans (end-1H23: 42% of total loans), and its focus on owner-occupied mortgages also supports their credit quality. We expect BSP to remain selective in its offshore lending or mainland
Stable Underlying Profitability: We expect growth in BSP's reported profitability in 2023 to be due primarily to higher foreign-exchange (FX) swap income. We forecast its underlying profit, excluding FX swap income, to remain broadly stable with operating profit/risk-weighted assets (OP/RWA) improving slightly to 1.3% in 2023 (2022: 1.2%). In 2024, we expect the bank's FX swap income to fall from the high base in 2023, but this should be partly offset by stronger offshore lending income, as well as steady growth in lending and fees, supporting stable core profit.
Sustained Capitalisation: We forecast BSP's common equity Tier 1 (CET1) ratio to be sustained at slightly above 11%, based on stable profitability and prudent RWA growth. Its CET1 ratio increased to 10.7% by end-1H23 from 9.4% at end-2022, boosted by a capital injection of
Sound Liquidity Profile: We believe
SPH
Ratings Aligned with Bank Subsidiary: SPH's ratings and Outlook are aligned with those of the principal subsidiary, BSP. Fitch expects SPH to remain a bank-centric company and maintain a moderate common-equity double-leverage ratio (DLR) in the absence of major acquisitions. BSP makes up around 90% of SPH's assets and contributes over 80% of group profit. The two are highly integrated in terms of risk management, business strategy and branding.
The rating impact on SPH in the case of any large-scale acquisition would depend on the funding structure, the group's financial flexibility reflected through DLR and capitalisation, and our assessment of the synergies that may arise from the transaction.
Steady Growth: We expect
Stable Core Profitability: We expect steady growth in SPH's core profitability, supported by
Stable Leverage: Fitch expects SPH's common-equity DLR to stay below 120%, based on stable core profitability and easing capital pressure from stock and bond valuation losses at BSP, as well as SPS's adequate capitalisation. SPS's capital adequacy ratio has been adequate at above 300% for the past two years (end-2023: 338%).
SPH maintained a stable common-equity DLR of 114% at end-3Q23 (end-2022: 113%) despite the absence of dividends from BSP. This was primarily due to a
Adequate Liquidity: Fitch estimates that dividend income from BSP would be sufficient to cover the holding company's dividend payout and small operating and interest expenses. We expect BSP to resume dividend payments to its parent in 2024. SPH's reliance on dividends from its subsidiaries as its primary liquidity source is partially mitigated by the parent's moderate leverage. Its overall funding and liquidity profile is also supported by stable core profitability, and hence dividends, at BSP. BSP did not declare any dividends for 2023, as its core capitalisation fell in 2022 from bond valuation losses.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Long-Term IDRs and VRs
BSP
BSP's ratings could be downgraded if its risk or growth appetite rises significantly, leading to severe deterioration in asset quality, profitability and capitalisation. The ratings could also face pressure if the impaired-loan ratio rises markedly to close to 3%, the OP/RWA ratio weakens towards 0.8% or the reported CET1 ratio falls on a sustained basis to significantly below 11%.
SPH
A downgrade of BSP's VR could trigger a similar move on SPH's ratings. In addition, a sustained increase in SPH's common-equity DLR - for example, from large-scale acquisitions - to above 120% may also lead to a rating downgrade for SPH.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Long-Term IDRs and VRs
BSP
An upgrade appears unlikely in the medium term, in light of BSP's moderate franchise and financial performance. However, the rating may be upgraded on substantial and sustained improvements in its profitability and capitalisation, for example, if its OP/RWA ratio were to rise to above 2% (end-1H23: four-year average of 1.2%), or if the reported CET1 ratio were to rise above 14% (end-1H23: 10.7%).
SPH
An upgrade of BSP's VR could trigger a similar move on SPH's ratings.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Short-Term IDR
BSP's and SPH's Short-Term IDR of 'F2' is at the baseline option, which maps to their Long-Term IDR, as BSP's funding and liquidity score of 'a-' does not meet the minimum 'a' funding and liquidity score to achieve a higher rating.
National Ratings
The National Long-Term Ratings of BSP and SPH are at the high end of the rating scale, reflecting very low default risk relative to domestic peers. The Stable Outlooks on its National Ratings are in line with the Outlook on its Long-Term IDRs. The affirmation of the National Ratings indicates that there is no change in Fitch's view of its credit profiles relative to the rated universe of issuers based in
BSP's Government Support Rating (GSR) of 'bbb-' reflects a high probability of government support, if needed, considering its moderate systemic importance with deposit market share of around 3.7% in a highly fragmented banking system.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
The Short-Term IDRs of BSP and SPH would be downgraded if BSP's VR is downgraded and its funding and liquidity score is lowered to below 'bbb+'.
Changes in Fitch's perception of BSP's credit profiles relative to the national rating universe in
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
The Short-Term IDR of SPH could be upgraded if BSP's Short-Term IDR is upgraded. BSP's Short-Term IDR could be upgraded if its funding and liquidity score is revised to 'a' or above, although we view this as unlikely because of its moderate franchise.
Strengthening in BSP's overall credit profile on a relative basis to the national rating universe could lead to an upgrade of its National Ratings.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The GSR could be downgraded if Fitch believes BSP's perceived importance to the banking system has weakened.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of BSP's GSR appears unlikely, as we expect the bank's systemic importance to remain moderate in the near term.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
The 'bbb+' Shareholder Support Rating (SSR) of BSP (
BSP (
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
BSP (
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Any upgrade of the parent's ratings is likely to lead to a similar move on BSP (
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.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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