Moody’s Investors Service has lowered its outlook for the credit ratings of the Rizal Commercial Banking Corp. (RCBC) and Philippine National Bank (PNB) from stable to negative, indicating that those ratings may be downgraded.
In a statement on Tuesday night, the New York-based credit rating agency explained that the outlook change on RCBC’s rating reflected risks to asset quality, especially in the retail and small and medium-sized enterprise (SME) segments, that arose from the economic shock induced by the coronavirus disease 2019 (Covid-19) pandemic.
Still, it affirmed the Yuchengco-led lender’s rating, which reflects the bank’s capital that provides a buffer to absorb some level of asset quality deterioration.
Moody’s also said the Lucio Tan-led PNB faced similar asset quality challenges, but its capital was much stronger. This, it added, gave it a bigger buffer to withstand asset quality pressures and underpinning the affirmation of its ratings.
“Nevertheless, the change in outlook to negative considers scenarios under which even its current strong buffer could be eroded,” it warned.
According to the debt watcher, the pandemic-induced economic shock has had a significant negative impact on borrowers in the retail and SME segments across the Philippine banking system.
“Both RCBC and PNB have relatively high exposure to these two segments in their loan portfolio,” it noted.
It also sees the pandemic as a social risk under its environmental, social and governance framework, given the substantial implications for public health and safety.
Moody’s said the two banks’ profitability was lower than their peers and represented a credit weakness.
RCBC’s net income dropped by 11.3 percent to P4 billion in the first nine months of 2020 from P4.5 billion a year earlier, while PNB’s plunged by 39.6 percent to P3.9 billion in January to September from P6.4 billion.
“The likely deterioration in asset quality on the back of the coronavirus [pandemic] will impact profitability through elevated credit costs over the next two years,” Moody’s said.
The debt watcher also said funding and liquidity would be stable and remain a credit strength for the two banks. Their funding has remained stable in the last few months amid the high volatility in the macroeconomic environment.
Both banks’ ratings — “Baa2” — incorporate one notch for expected systemic support, in line with their systemic importance, according to Moody’s.
“Given the negative outlook, an upgrade over the next 12 to 18 months is unlikely for both RCBC and PNB,” it said.
Despite this, the credit watchdog said it could raise RCBC’s outlook back to stable if its asset quality deteriorates only moderately, such that capital remains at current levels while its net nonperforming loans (NPL) ratio stays below 2 percent.
For PNB, Moody’s said it could change the outlook back to stable if both capital and its net NPL ratio stay at current levels.
RCBC shares slid by 6 centavos or 0.32 percent to finish at P18.54 apiece while PNB shares declined by 10 centavos or 0.33 percent to close at P30 each on Wednesday.