Moody’s downgrades 2 banks’ outlook

MANILA, Philippines — Credit rating agency Moody’s Investors Service has downgraded its outlook on Rizal Commercial Banking Corp. (RCBC) and Philippine National Bank (PNB) to negative as the coronavirus pandemic has heightened asset risks, putting pressure on the profitability of these banks.

Nevertheless, Moody’s said both banks have strong capital, prompting the debt watcher to affirm their credit ratings.

“The change in outlook to negative on RCBC’s ratings reflects risks to asset quality, especially in the retail and small and medium-sized enterprise (SME) segments, arising from the coronavirus-induced economic shock. At the same time, the affirmation of its ratings reflect the bank’s capital, which provides a buffer to absorb some level of asset quality deterioration,” Moody’s said.

The credit watcher said PNB faces similar asset quality challenges, but the bank has a stronger capital position that would provide a bigger buffer to withstand these pressures.

“Nevertheless, the change in outlook to negative considers scenarios under which even its current strong buffer could be eroded,” it said.

Both RCBC and PNB have a baseline credit assessment and adjusted BCA of baa3 from Moody’s.

The two banks also have a long-term counterparty risk assessment of Baa2(cr), long-term counterparty risk ratings of Baa2, senior unsecured medium-term note (MTN) program rating of (P)Baa2, senior unsecured foreign currency rating of Baa2, long-term bank deposit rating of Baa2, short-term deposit and short-term counterparty risk ratings of P-2, and short-term counterparty risk assessment of P-2(cr).

According to Moody’s, the COVID-19 crisis has had a negative impact on borrowers in the retail and SME segments, which both RCBC and PNB have relatively high exposures to in their loan portfolios.

“RCBC and PNB’s profitability is lower than peers, and represents a credit weakness. The likely deterioration in asset quality on the back of the coronavirus outbreak will impact profitability through elevated credit costs over the next two years,” Moody’s said.

The credit rating agency said PNB’s Common Equity Tier 1 (CET1) ratio of 15.7 percent as of end-September compares well with peers, and would be further strengthened by up to 150 basis points if the proposed sale of some of its real estate is completed.

Moody’s said funding and liquidity would likely remain stable and serve as a credit strength for the two banks.

“The banks’ funding has remained stable in the last few months,
even amid high volatility in the macro environment. Funding is a
particular strength of PNB, as reflected in its low cost of funding when compared to peers banks in the Philippines,” Moody’s said.