Moody’s upgrades PNB, RCBC ratings

Philippine National Bank (Photo by Philippine National Bank, Fair use)

MANILA  — Debt watcher Moody’s Investors Service has upgraded its ratings on the Philippine National Bank (PNB) and Rizal Commercial Banking Corp. (RCBC), citing the government’s ability to help financial institutions if needed and the stable domestic operating environment.

In a statement, the debt rater hiked the two banks’ foreign currency deposit ratings from Baa3/P-3 to Baa2/P-2 and both have been given Stable outlooks.

PNB’s local currency deposit rating was also upped from Baa3/P-3 to Baa2/P-2 while RCBC’s senior unsecured debt and senior unsecured MTN program rating was raised to Baa2 and (P)Baa2 from Baa3 and (P)Baa3 and the bank’s other short-term rating to (P)P-2 from (P)P-3.

The credit rater also hiked the two banks’ baseline credit assessments (BCAs) and adjusted BCAs to baa3 from ba1.

Upgrade of PNB’s BCA was due to the improvement of the bank’s financial profile following its merger with Allied Banking Corp. in 2013, it said.

Moody’s said PNB’s asset quality and capital buffers “have become comparable with those of its peers in the Philippines”.

“The bank’s high levels of capitalization and loan-loss coverage provide sufficient loss-absorption capacity at its current rating level to withstand moderate asset quality deterioration over the next 12 to 18 months,” it said.

In the case of RCBC, upgrade of its BCA “reflects Moody’s assessment that the bank’s standalone profile has become comparable with its peers in the Philippines, as reflected by its solvency and funding metrics”.

Moody’s also projects that the bank’s capital buffers will remain in line with its peers “by periodically accessing the equity markets, as it has done in the past”.

“RCBC’s BCA also reflects the bank’s smaller branch network, which limits its ability to garner low-cost deposits compared with that of its larger peers in the country. Nevertheless, liquid assets — which represented 32 percent of the bank’s tangible assets at end-2016 — provide support against downside risks,” it said.
“The upgrade of PNB and RCBC’s deposit ratings to Baa2 takes into account the one-notch upgrade of their BCAs to baa3, and a one-notch uplift to reflect Moody’s assumption that the banks will receive support from the Government of the Philippines (Baa2 stable) in times of need,” it said.

Improvement of the banks’ BCAs were done after Moody’s cited the stable operating environment for domestic banks because of continued expansion of the domestic economy and the benign leverage and stable debt servicing rates of the private sector.

“Philippine banks exhibit strong funding profiles that are dominated by deposits, and demonstrate little reliance on short-term wholesale funding. These factors are incorporated in Moody’s assessment of the macro profile of the Philippines of Moderate(+),” the statement added.