Fitch Ratings has revised the Outlook on Metropolitan Bank & Trust Company's (Metrobank) Long-Term Issuer Default Ratings (IDR) to Stable from Negative and affirmed its Long-Term IDRs at 'BBB-'.

At the same time, we have 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 reflect 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 increase 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

Sovereign Drives Revision in Outlook: Metrobank's Long-Term IDRs are underpinned by Fitch's expectation of support from the Philippine government, as denoted by its GSR. We believe that the Stable Outlook on the sovereign rating indicates the state's improving ability to support the bank in times of need. The Long-Term IDRs and GSR on Metrobank are one notch below the sovereign rating, reflecting its high systemic importance as one of the three largest private commercial banks in the Philippines, with market share of about 12% in system assets and deposits.

VR Not Affected: The bank's VR is not affected by this review and will continue to benefit from the resilient economic activity over the next 12-18 months. We project the bank's profitability to continue to improve in 2023, 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 Philippines' Metrobank at 'BBB-'; Outlook Negative , published on 18 April 2023.

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

Rating Sensitivities

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

There could be negative action on the IDRs and GSR if the sovereign rating is downgraded, or if we believe that government propensity to support the bank is diminished, for example through a large decline in the bank's systemic importance. We believe that this scenario is unlikely to occur in the near term

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

Conversely, an upgrade or a revision in the Outlook of the sovereign rating to Positive would likely lead to similar revision in the bank's rating, assuming our assessment of the state'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

Metrobank's IDRs are driven by and 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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