Fitch Ratings has revised the Outlook on BDO Unibank, Inc.'s (BDO) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to Stable from Negative, and affirmed the Long-Term IDRs at 'BBB-'.

At the same time, Fitch has also 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 substantial increases in recent years. For more details, please see Fitch Revises Outlook on Philippines to Stable; Affirms at 'BBB', published on 22 May 2023.

The bank's Viability Rating (VR) was not reviewed as it was last affirmed on 18 April 2023 and there have not been significant developments since then to affect our assessment. The bank's ex-government support ratings are also unaffected by this review.

Key Rating Drivers

Revision Driven by Sovereign Changes: The revision in the Outlook of BDO's Long-Term IDRs reflects our assessment of the state's improving ability to support the bank, in times of need. The bank's Long-Term IDR of 'BBB-' and GSR of 'bbb-' are a notch lower than the sovereign, which takes into account its high systemic importance as the largest bank in the country, with market share of around 18% of system assets and deposits, as well as the state's moderate fiscal flexibility, as indicated by the sovereign rating of 'BBB'/Stable. The Short-Term IDR has been affirmed at 'F3'.

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

For more details on the key rating drivers and sensitivities of the bank's VR, please refer to Fitch Affirms BDO Unibank's Rating at 'BBB-'; Outlook Negative, published on 18 April 2023.

Rating Sensitivities

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

A downgrade or a revision in the Outlook of the sovereign rating to Negative would likely lead to a similar revision in the bank's ratings.

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

Conversely, positive rating action on the sovereign rating is likely to lead to corresponding action on the bank's Long-Term IDRs, assuming that the sovereign's propensity to support the bank 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

BDO's IDRs are driven by 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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