Moody’s Investors Service affirmed on Monday Rizal Commercial Banking Corp.’s long-term foreign currency bank deposit and senior unsecured ratings at investment grade or “Baa3.”
Moody’s also changed the outlook on the ratings to positive from stable.
“The change in outlook to positive reflects RCBC’s improved capital position after the P27 billion capital infusion from Sumitomo Mitsui Banking Corp.,” it said.
“In addition, Moody’s 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 said.
The positive outlook also takes into account improvements in RCBC’s asset quality.
Moody’s said it expects RCBC’s nonperforming loan ratio to remain below 4 percent in 2023 and 2024, after NPL declined to 3.9 percent at the end of 2022 from 5.9 percent a year earlier, supported by recovery efforts by the bank and the country’s post-pandemic economic rebound.
It said, however, the bank’s plan to increase the share of retail and small and medium enterprise (SME) loans, which are riskier than corporate loans, will pose risks to its asset quality should the bank undertake aggressive growth and credit underwriting.
Profitability, as denoted by return on tangible assets, will improve to close to 1 percent as the bank resumes loan growth of 10 percent 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.
“Moody’s could upgrade the bank’s ratings and BCA if its tangible common equity to adjusted risk-weighted assets remains above 14 percent and the NPL ratio declines to below 3 percent over the next 12-18 months,” Moody’s said.
It said given the positive outlook, a downgrade of the bank’s BCA and ratings is unlikely.