Moody's lowers RCBC's rating, keeps Chinabank's investment grade

MANILA, Philippines — Two local banks saw varying ratings action from debt watcher Moody’s Investors Service, which cited worsening asset quality of these lenders as the pandemic lingers.

In separate statement on Friday, Moody’s downgraded the credit rating of Yuchengco-led Rizal Commercial Banking Corp. (RCBC) to “Baa3” from “Baa2” but kept the rating for Sy-led China Banking Corp. at Baa3.

As it stands, local banks took a hit at the onset of the pandemic as soured loans filled their books following a historic economic collapse last year. The central bank expects the NPL ratio of Philippine banks to peak at 8.2% in 2022. 

According to Moody’s, the credit rating of RCBC warranted a downgraded to due weak asset quality and deteriorating capital. But Moody’s nevertheless upgraded its outlook on RCBC to “stable” from “negative” on expectations that “higher core profitability will mitigate risks to asset quality.”

Moody’s explained that RCBC’s asset quality remains weak, citing the decline of loan provision coverage to 64% from 74% despite gross non-performing loans ratio declining to 5.2%, lower 3.7%, by the end of September. 

The Yuchengco-led bank’s restructured loans that were not classified as NPLs were markedly higher compared to other rated domestic banks at around 6% as of September, Moody’s noted. 

But “core pre-provision income profitability has improved over the past two years, driven by operating cost control. This is a credit positive,” the debt watcher said.

Meanwhile, Moody’s kept its outlook on Chinabank at “stable” because of “improved capital”. However, the credit rating agency noted that the lender’s asset quality has worsened, with the gross NPL ratio increasing to 3.4% as of the end of September, from 2.3% and 1.5% as of the end of 2020 and 2019, respectively.

“The bank's high loan concentration in the corporate segment poses risks to asset quality,” it added.

Shares in Chinabank inched up 1.2% to cap the week at P25.3 apiece, while RCBC slipped 2.56% to P19 each.