Moody's affirms Rizal Commercial Banking Corp's ratings

Stocks and Financial Services Press Releases Thursday June 14, 2012 16:56
Singapore--14 Jun--Moody's
Singapore, June 14, 2012 -- Moody's Investors Service has affirmed the following ratings of Rizal Commercial Banking Corporation (RCBC):
D- bank financial strength rating (BFSR), which maps to a ba3 baseline credit assessment (BCA)
Ba2/NP foreign currency long term/short term deposit rating
Ba2 foreign currency senior unsecured debt rating
(P)Ba2/(P)NP foreign currency senior unsecured MTN rating
(P)Ba3/(P)NP foreign currency subordinate MTN rating
B3(hyb) foreign currency hybrid tier 1 capital securities
The ratings outlook is stable.
RATINGS RATIONALE

The affirmation of RCBC's ratings takes into account the bank's well-established niche in the corporate middle market and special economic zones, improved capitalization, and potential synergies from its affiliation with the Yuchengco Group of companies. The affirmation also considered the bank's relatively small market presence, and improving but still weak asset quality.

RCBC's foreign currency long-term deposit rating of Ba2 is supported by: (1) the bank's ba3 BCA, and (2) Moody's assessment of a moderate probability of systemic support, if required. This assessment is predicated on the bank's modest market position, which underpins Moody's view of its significance to the Philippine banking sector.

When compared to the average metrics of other D- rated Asian banks, RCBC has higher Tier 1 and total capital ratios; its liquidity profile and risk-adjusted profitability are also stronger, as reflected in its lower loans-to-deposits ratio, higher proportions of liquid assets in its asset base, and net income as a percentage of average risk-weighted assets.

However, we view these positive factors as being partially offset by RCBC's noticeably weaker asset quality metrics as compared to the D- rated Asian banks, which are largely driven by the high level of foreclosed properties on its balance sheet. In addition, we view the potential for asset quality challenges arising from the bank's exposure to manufacturers that are vulnerable to the persistently weak external environment.

We are also mindful of RCBC's rapid credit growth trend (2011: 22% loan growth year-on-year) which, if maintained, would lead to an erosion of its capital buffers and therefore weaken its capacity to withstand asset quality pressures.

The stable outlook on the bank's ratings reflects Moody's expectations that RCBC will maintain buffers in its liquidity positions and capital to withstand stress situations over the next 12-18 months.
RATING TRIGGERS
RCBC's BFSR and BCA could be upgraded if:

[1] Asset quality continues to improve, shown by a reduction in its non-performing assets (non-performing loans (NPL), foreclosed assets and assets held by its special purpose vehicles) to less than 30% of equity and loan-loss reserves;

[2] Evidence that it can continue to rein in credit costs and improve its risk-adjusted profitability, reflected by net income of more than 2.5% of average risk-weighted assets.
Conversely, the BFSR and deposit ratings could be downgraded if:
[1] The operating environment weakens significantly or underwriting practices become loose, resulting in the NPL ratio exceeding 7.5%;
[2] NPLs rise without a corresponding increase in loan-loss provisions, resulting in the NPL coverage falling below 80%;
[3] Its capital buffer declines materially, such that Tier 1 capital ratio falls below 9%.
PRINCIPAL METHODOLOGIES

The methodologies used in these ratings were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: Global Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

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