Moody’s affirms China Bank’s investment grade rating

MANILA, Philippines — Moody’s Investors Service has affirmed the investment grade rating of Sy-led China Banking Corp. on the back of the significant improvement in the bank’s capital and profitability.

The debt watcher retained China Bank’s deposit and issuer ratings at Baa2, a notch above minimum investment grade, as well as it Baseline Credit Assessment (BCA) at baa3.

Likewise, its credit rating outlook remained stable on improving capital and profitability, mitigating risks to asset quality.

Moody’s said China Bank’s common equity tier 1 ratio improved to 14.4 percent in September from 12.8 percent as of end-2019.

“Capital will remain stable over the next 12 to 18 months, with upside potential, as balance sheet growth will be muted,” the debt watcher said.

Likewise, the bank’s core operating profit or pre-provision income less trading gains, as a percentage of assets, increased to two percent from January to September compared to last year’s 1.4 percent.

The increase was driven by a higher net interest margin of 4.2 percent from 3.4 percent.

“Higher core profitability will allow the bank to absorb elevated credit costs over the next 12 to 18 months,” it said.

Moody’s said China Bank’s asset quality has worsened, with gross non-performing loan (NPL) ratio increasing to 3.4 percent in end-September from 2.3 percent in 2020 and 1.5 percent in 2019.

Moody’s warned that the listed bank’s high loan concentration in the corporate segment poses risks to asset quality.

It believes funding and liquidity would remain stable as funding mix has improved over the past year, with the share of low-cost current and savings deposits increasing to 62 percent from 53 percent.

The bank deposit ratings receive one-notch uplift due to Moody’s assumption of a moderate level of government support for the bank.

“This support assumption is in line with China Bank’s systemic importance, with a deposit market share of 5.4 percent as of the end of September this year,” Moody’s said.

China Bank is owned by the family of the late retail and banking magnate Henry Sy. The family also owns the country largest lender, BDO Unibank Inc.