RCBC credit rating outlook upgraded to positive
MANILA, Philippines — Moody’s Investors Service has revised the credit rating outlook of Yuchengco-led Rizal Commercial Banking Corp. (RCBC) to positive from stable, reflecting a fresh capital infusion from its Japanese strategic investor.
The revision was made as the debt watcher affirmed RCBC’s investment grade credit rating at Baa3.
Japan’s Sumitomo Mitsui Banking Corp. (SMBC) infused P27 billion to hike its stake in the Yuchengco-led bank to 20 percent from the previous five percent.
“The change in outlook to positive reflects RCBC’s improved capital position after the P27 billion capital infusion from SMBC,” Moody’s said.
In addition, the credit rating agency expects that RCBC will maintain its capitalization, as denoted by tangible common equity / adjusted risk-weighted assets, at around 14 percent over the next 12 to 18 months, a level that is adequate and generally on par with its domestic rated peers’.
It added that the positive outlook also takes into account improvements in RCBC’s asset quality.
According to Moody’s, RCBC’s nonperforming loan (NPL) ratio is expected to remain below four percent this year and next year after declining to 3.9 percent at the end of 2022 from 5.9 percent in 2021.
It pointed out that the improving asset quality is supported by the bank’s recovery efforts and the country’s post-pandemic economic rebound.
However, Moody’s said RCBC’s plan to increase the share of retail and small and medium enterprise (SME) loans, which are riskier than corporate loans, would pose risks to its asset quality should the bank undertake aggressive growth and credit underwriting.
On the other hand, it cited that profitability, as denoted by return on tangible assets, would improve to close to one percent as the bank resumes loan growth of 10 to 15 percent in the higher-yielding retail and SME segments, which would help absorb the increased cost of funds due to rapid rate hikes in the Philippines over the past 12 months.
Furthermore, RCBC maintains a high level of liquidity as indicated by its high liquid banking assets to tangible banking assets ratio of 47 percent as of the end of 2022.
Moody’s said it could upgrade RCBC’s ratings if its tangible common equity to adjusted risk-weighted assets remains above 14 percent and the NPL ratio declines to below three percent over the next 12 to 18 months.