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International credit rating agency Fitch Ratings announced that it has upgraded Metropolitan Bank and Trust Company’s (Metrobank) Individual Rating to C/D from D and concurrently affirmed all other ratings of the bank.

The Outlook on the bank’s ‘BB’ Long-term foreign currency Issuer Default Rating (IDR) remains at Stable.

Fitch said that the upgrade of Metrobank’s Individual Rating reflects its stronger capital position, particularly after raising new common equity in 2010 and its reasonably good performance despite the recent downturn in 2008/2009.

"(We) believe that the capital raising has enhanced the bank’s loss absorption capacity and helps alleviate any potential weaknesses that could arise from its balance sheet, particularly in the event of a renewed difficult environment," Fitch said.

For the first semester of 2010, Metrobank set aside provisions for credit and impairment of P3.8 billion, or P0.6 billion higher from a year ago.

In May 2010, Metrobank issued 104 million in primary shares, raising approximately P5.0 billion in capital to strengthen its position in the Philippine banking industry.

With the fresh capital, Metrobank’s Tier 1 ratio increased to 11 percent and total CAR was at 15.5 percent.

"Hence, the bank is better-placed to cushion any potential impairment risks in a worst case scenario," Fitch said.

Fitch said that positively, such pressures on asset quality and capital have gradually eased in view of the more stable credit environment, which is likely to continue amid the ongoing economic recovery in the Philippines.

"Metrobank has a strong domestic presence and its balance sheet health has improved in recent years, with a higher capital buffer and steadily reducing and better-reserved non-performing assets. Although loan quality held up fairly well, non-loan assets contributed most of the bank’s impairment charges in 2009, equaling to a high 1.1 percent of total assets. However, the reserve coverage on its investment properties (mostly foreclosed assets) remained lower at 9 percent than that of non-performing loans at 76 percent at end-2009,"Fitch said.

The agency also notes Metrobank’s investments in non-financial institution associates (ie not majority stake), though sizeable, do not appear to exert any significant pressure on its capital as most of these have been profitable investments.

"Together with reduced downside risks to the bank’s financial profile amid the more stable economic environment, Metrobank’s rating Outlook is Stable," Fitch said.

Fitch noted that further positive rating action on the Individual Rating would require more balance sheet improvements with considerably lower provisioning risks from bad assets, and the preservation of a good capital buffer, which appears more likely over the medium-term.

"At present, however, Metrobank’s long-term foreign currency IDR of ‘BB’ is already the same as that of the sovereign. Conversely, any unexpected weakening in capital and asset quality, particularly in a challenging economic environment, may exert downward rating pressure, although such risks have largely receded amidst improved economic conditions," Fitch said.

Fitch has also affirmed Metrobank’s hybrid rating at ‘B’, which is three notches below the bank’s long-term foreign currency IDR of ‘BB’, in accordance with the agency’s criteria of rating hybrid securities and preference shares of financial institutions.

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