Moody’s Ratings, a credit rating agency, has upgraded Philippine National Bank’s (PNB) deposit ratings, citing the big bank’s sustained improvement in profitability, strong capital position, and solid liquidity as key drivers of the upgrade.

Moody’s has raised PNB’s ratings for long-term foreign-currency and peso deposits to Baa2 from Baa3, and for short-term foreign-currency and peso deposits to P-2 from P-3.

It has also increased the bank’s Baseline Credit Assessment (BCA) and adjusted BCA to baa3 from ba1.

Moody’s also upgraded PNB’s foreign-currency senior unsecured rating and its medium-term note program rating, both to Baa2 from Baa3, indicating improved confidence in the bank’s ability to meet its debt obligations in foreign currency.

“We have also changed the rating outlooks, where applicable, to stable from positive,” Moody’s said in a statement released Tuesday, April 15.

“The upgrade of the bank’s deposit ratings and BCA is driven by PNB’s sustained improvement in core profitability, robust capital and solid liquidity, which will provide sufficient buffers against the bank’s modest asset quality,” Moody’s said.

PNB’s Baa2 deposit ratings reflect Moody’s expectation of strong government support, leading to a one-notch upgrade from the bank's standalone credit strength of baa3.

Moody’s noted that PNB’s return on assets rose to 1.7 percent in 2024 from a 0.9 percent five-year average, driven by stronger net interest margins and better funding cost management.

Lower credit costs also boosted PNB’s profits, with profitability expected to stay around 1.7 percent to 1.8 percent this year, supported by strong margins from higher-yielding loans and low funding costs.

As of end-2024, PNB’s tangible common equity ratio stood at nearly 21 percent, the highest among its rated peers in the country. While the credit rater expects PNB’s capitalization to decrease over the next three years, Moody’s sees that it will remain robust at above 16 percent.

PNB posted a strong liquidity coverage ratio of 255 percent in 2024, with the highest CASA ratio among rated local banks at 84 percent, supporting low funding costs despite its modest five-percent market share in deposits.

“These strengths balance the bank's modest asset quality, which deteriorated over the pandemic due to large, concentrated exposures,” Moody’s noted.

PNB’s problem loan ratio dropped to nearly seven percent at the end of 2024 from almost 12 percent in 2021, due to loan upgrades and write-offs, while improvements in loan formation and reduced exposure to related parties and large risks highlight stronger credit standards and risk management.

Looking ahead, PNB’s deposit and senior unsecured ratings are unlikely to be upgraded further because they are already at the same level as the country's sovereign rating, which has a stable outlook, according to Moody’s.

However, the bank’s BCA could be upgraded if its asset quality improves to match the two- to three-percent problem loan ratio of its domestic peers, with credit costs staying below one percent and return on tangible assets above 1.5 percent.

Moody’s noted that the upgrade would also depend on better governance, including stronger risk management of retail loans and large exposures.

In contrast, PNB’s ratings and BCA could be downgraded if its asset quality worsens, with the problem loan ratio rising above 10 percent, credit costs increasing, return on assets dropping below 0.8 percent, or a significant decline in its tangible common equity to risk-weighted assets ratio.