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Friday, March 29, 2024

Moody’s affirms PNB’s ‘Baa3’ rating, changes outlook to stable

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By Julito G. Rada

Moody’s Investors Service affirmed on Wednesday the “Baa3” or investment-grade rating of Philippine National Bank, taking into consideration the bank’s bright prospects.

Moody’s changed the rating outlook to stable from negative, reflecting the agency’s expectations that PNB’s asset quality would be stable while its profitability would gradually improve, supporting its overall credit profile.

“The affirmation of PNB’s ratings and the outlook revision to stable from negative was driven by an improvement in the bank’s asset quality over the past 12 months,” Moody’s said.

The bank’s nonperforming loan ratio improved to 6.5 percent at the end of June 2022 from 11.5 percent a year ago, driven by the normalization of loan repayments by a few large exposures in pandemic-impacted sectors such as travel and tourism.

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Moody’s said it was expecting the bank’s asset quality to remain stable over the next 12 to 18 months because its legacy problem loans were largely classified as NPLs while new loans underwriting was conservative over the past two years.

PNB’s common equity tier 1 ratio increased to 14.5 percent at the end of June from 13.2 percent a year ago, driven by muted balance sheet growth and a reduction in NPLs. Its capital will remain stable over the next 12 to 18 months because its balance sheet growth will remain muted, it said.

PNB’s core profitability was lower than its peers and was a key credit weakness. However, the bank will benefit from a normalization of credit costs, in line with the improvement in asset quality, Moody’s said.

“Funding is a credit strength of PNB. Its cost of funding is comparable to the big three Philippine banks, helped by its high share of current and savings account deposits,” it said.

PNB’s “Baa3” rating is one notch above its ba1 baseline credit assessment, reflecting a high likelihood of support from the government when needed, given the bank’s high systemic importance as reflected by its market share by total assets of 5.6 percent as of June 30, 2022.

Moody’s said it could upgrade PNB’s BCA and ratings if its asset quality significantly strengthens, with its NPL formation rates reverting to pre-pandemic levels for a sustained period, and its pre-provision profitability improves.

Moody’s said it could downgrade PNB’s ratings and BCA if its asset quality and capital deteriorate substantially.

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