MANILA, Philippines — Moody’s Investors Service has affirmed the Baa2 investment grade credit rating and stable outlook of Sy-led China Banking Corp. on the back of its strong capitalization and profitability.
The debt watcher said the rating, equivalent to a notch above the minimum investment grade, reflects the strengths of the listed bank including stable capitalization and profitability supporting business expansion as well as sound liquidity.
The common equity tier 1 (CET-1) ratio of China Bank has been steadily improving to 15.5 percent as of end-March from 14.9 percent in 2021 and 13.8 percent in 2020.
“The improvement in the bank’s capital since 2019 has been higher than the average of its peers, reflecting a combination of low loan growth from the pre-pandemic level in 2019 and increased profitability,” Moody’s said.
As of end-March, China Bank reported higher annualized core operating profitability of 1.9 percent while its annualized return on average assets was at 1.7percent, the highest among its rated domestic peers.
The credit rating agency said the improvement of China Bank was driven by higher net interest margin (NIM), which increased to 4.3 percent during the first quarter from 4.2 percent in the same period last year.
“The improvement in NIM was largely because of the low interest and easy liquidity environment, which led to a significant reduction in funding costs,” Moody’s said.
It also cited asset quality risks resulting from the concentrated loan book and a modest funding profile, with a relatively high share of corporate deposits, as the bank’s credit challenges.
The business loans segment, which is less susceptible to economic disruptions, accounted for 80.1 percent of China Bank’s loan book.
However, the bank’s non-performing loans (NPL) ratio improved to 2.4 percent from 3.8 percent.