MANILA, Philippines – State-run Land Bank of the Philippines (Landbank) has received an upgraded Viability Rating (VR) from Fitch Ratings, improving from ‘bb’ to ‘bb+’. Jargon aside, what does this mean, and is this a sign that Landbank has recovered from its controversial P50-billion capital infusion into the Maharlika Investment Fund?

For context, Fitch Ratings is a major global credit rating agency that assesses financial institutions based on their risk exposure, creditworthiness, and ability to meet financial obligations. The Viability Rating (VR) that Fitch issues reflects a bank’s standalone financial health, independent of state support.

A rating of bb+ is, of course, an improvement, but that still keeps Landbank in the category of “Speculative Fundamental Credit Quality.” According to Fitch, this would mean that a “moderate degree of fundamental financial strength exists, which would have to be eroded before the financial institution would have to rely on extraordinary support to avoid default.”

The ratings agency also reaffirmed Landbank’s Long-Term Issuer Default Rating (IDR) at ‘BBB’/Stable and Government Support Rating (GSR) at ‘bbb’, reflecting the bank’s continued backing by the state. The Long-Term IDR assesses a bank’s ability to meet its long-term debt obligations, and the GSR indicates how likely the state is to intervene if the institution faces financial distress.

“This latest rating upgrade is a testament to Landbank’s sound financial foundation and resilience,” said Landbank president and chief executive officer Lynette Ortiz. “With a solid capital base and an improving profitability outlook, we are well-positioned to drive stronger financial performance while deepening our commitment to agriculture and other key economic sectors that fuel national growth.”

What led to the upgrade?

The rating upgrade was driven by several factors, including expected improvements in capital buffers and profitability related to lower credit costs and a better non-performing loans (NPL) ratio, as well as a stronger economic environment that is expected to support loan growth and financial stability, according to Fitch.

A major factor in the upgrade was the improvement in the Philippines’ overall banking sector environment. Fitch revised the entire sector’s score upward, signaling greater financial stability and economic resilience. Landbank, as the Philippines’ second-largest bank and largest government-owned financial institution, stands to benefit from these favorable conditions.

Another key driver was the country’s solid economic growth outlook. Fitch expects the Philippine economy to grow by 5.9% in 2025 and 6.2% in 2026, fueled by lower interest rates and infrastructure investments. If such a robust expansion does push through, it could drive higher demand for loans that would ultimately boost Landbank’s lending business while keeping loan defaults manageable.

The state-owned bank’s own efforts to recover from pandemic-related loan delinquencies also played a role in its improved rating. The bank’s NPL ratio, which worsened in 2024 due to the lingering effects of COVID-19-related lending, is expected to improve as it “ramps up efforts to resolve problematic loans,” according to Fitch. This, coupled with an anticipated decline in credit costs in 2025, is projected to boost profitability.

What Fitch thinks of Landbank’s contribution to Maharlika

You might remember that Landbank, along with the Development Bank of the Philippines (DBP), both faced questions when they were required to pour billions into kickstarting the country’s controversial sovereign wealth fund. Fitch has been paying attention to this too.

While Landbank reported a Common Equity Tier-1 (CET1) ratio of 15.1% at the end of 2024 — above the central bank’s minimum 10.25% requirement for Landbank — Fitch pointed out that the number is padded by regulatory relief on its P50-billion contribution to the Maharlika Investment Fund. This adjustment effectively gave the bank a 3.1 percentage-point boost in its risk-weighted assets, making its capital position look stronger than it actually is.

Let’s break that down: CET1 ratio is an important measure of a bank’s financial strength. It tells you how much core capital the bank has for absorbing losses before it runs into trouble. This tier considers only the highest quality of regulatory capital, like stocks and retained earnings, which can be easily liquidated to meet unexpected losses. The higher the ratio, the safer the bank.

Regulatory relief means that Landbank has a special exemption so it doesn’t have to count its P50 billion Maharlika contribution as a hit to its capital reserves, which could otherwise put the bank in danger of breaching its minimum capital requirements.

Landbank has previously said that it remains “financially strong” and only sought regulatory relief as a “proactive measure to maintain resilience,” but nevertheless, this makes its financial position look stronger than it really is. In reality, without this special treatment, Landbank’s capital reserves would be thinner.

Still, Fitch doesn’t seem too worried as it expects the bank’s capitalization to improve over time.

“We project LBP’s core capitalization to improve, as increasing capital generation is likely to surpass RWA growth, underpinning the revision in the capitalization score to ‘bb’/positive from ‘bb-‘/stable. The bank’s underlying capitalization was weaker than the reported CET1 ratio of 15.1% at end-2024, as the bank benefits from regulatory relief on its P50 billion capital contribution to a sovereign wealth fund, which is equivalent to an estimated 3.1pp of RWAs,” Fitch said.

This is a notable shift, especially considering Fitch had previously flagged the Maharlika contribution as a potential strain on Landbank’s financial stability. Back in February 2024, the ratings agency warned that it had a negative outlook on both Landbank and DBP’s capitalization scores, which they “may revise down if the banks likely cannot adequately replenish their capital buffers in the near to medium term.” — Rappler.com

Finterest is Rappler’s series that demystifies the world of money and gives practical advice on managing your personal finances.

• [Finterest] Ria Money Transfer expands in PH with GCash partnership
• [Finterest] Should you invest in Singlife’s new Income Multiplier VUL insurance?  
• [Finterest] Arq’s SheSecure program gives better funding for women-led SMEs
• [Finterest] You can now pay your Meralco bill instantly at 7-Eleven
• [Finterest] You can swap your torn bills, rusted coins at any bank for free
• [Finterest] As 2024 ends, Filipinos feel a little less gloomy about their finance
• [Finterest] Gen Z wants credit but can’t get it. Banks need to step up their game.
• [Finterest] Swipe right or swipe your wallet? Philippines still a hotbed for dating scams
• [Finterest] Overseas remittances are at an all-time high — and mostly digital now
• [Finterest] Private banking: How the wealthy keep the money within the family
• [Finterest] Credit card 101: How does it work, and which one is for you?
• [Finterest] How to earn on TikTok Shop, according to the app’s top vendors
• [Finterest] What is the PSEi, and why does it matter?
• [Finterest] Should you invest in Singlife’s new Income Multiplier VUL insurance?