Moody’s affirms BDO, Metrobank credit ratings
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Tue, 22 Jan 2019 16:30:45 +0000
Investment grade ratings for two banks affected by a Subic-based shipbuilder’s bankruptcy — potentially the biggest default in Philippine corporate history — have been affirmed by Moody’s Investors Service.
BDO Unibank, Inc. and Metropolitan Bank & Trust Co. (Metrobank) continue to be rated “Baa2” with a stable outlook and Moody’s also said there was a “very high probability” that the government would extend support to the banks if needed.
”The ratings outlook, where applicable, is stable,” it said in a statement on Tuesday, noting that the scores was not raised because the lenders’ baseline credit assessments (BCA) of baa2 were already at the same level as the sovereign rating.
Earlier this month, Moody’s had warned that the five banks exposed to the insolvency of Hanjin Heavy Industries and Construction Philippines (HHIC-Phil) — BDO, Metrobank, Land Bank of the Philippines (Landbank), Rizal Commercial Banking Corp. (RCBC) and Bank of the Philippine Islands (BPI) — could see their credit ratings fall given potential losses of around $412 million.
RCBC was said to be the most exposed at around $140 million, followed by $80 million for Landbank, about $72 million for Metrobank and some $60 million for both BDO and BPI.
All five are currently rated “Baa2” with stable outlooks.
In affirming BDO’s rating, Moody’s said it took into account the bank’s domestically focused, prominent and growing franchise; stable asset quality and loss absorbing buffers; sufficient capital levels that exceed the regulatory minimum; stable profitability that is supported by a gradual expansion in net interest margins; and its robust funding and liquidity profile.
The bank’s BCA also incorporates the weaker aspects of BDO’s credit profile, including downside risks to loan quality posed by an unseasoned loan book and high concentration risk.
Moody’s added that the bank’s reported nonperforming loan (NPL) ratio was stable at 1.1 percent as of the end of September 2018, compared with 1.2 percent as of year-end 2017 and 1.3 percent as of year-end 2016.
The bank’s capital was described as a credit strength, with a reported common equity tier 1 (CET1) capital ratio of 12.3 percent as of September 30, 2018, slightly lower than the 12.9 percent as of year-end 2017 after a stock rights issuance.
“Over the last year, profitability has been supported by an increase in net interest margins, on account of a rise in interest rates,” the debt watcher said.
BDO’s funding and liquidity profile remains a key credit strength, it added, with the bank also having one of the highest shares of low-cost current-account and savings account deposits (about 70 percent) in its deposit base as of end-September 2018.
Metrobank’s baa2 BCA, meanwhile, was said to reflect its strong franchise in the corporate and consumer segments as the country’s second-largest bank in terms of assets; robust capital and
liquidity; stable asset quality that reflects the bank’s discipline and prudence in growing its business; and relatively high credit risk concentration that exposes bank to single-name credit events or industry-specific cyclicality.
The credit rater acknowledged that Metrobank’s gross NPL ratio, which rose marginally to 1.2 percent as of the end of September 2018 from 1.0 percent as of year-end 2017, remained in line with peer banks.
It added that the bank’s Common Equity Tier 1 (CET1) capital ratio improved to 15.2 percent as of the end of September 2018 from 11.8 percent as of year-end 2017, supported by a P60-million stock rights issuance in April 2018.
The bank’s return on assets improved slightly in the first nine months of 2018 to 1.1 percent from 1.0 percent in 2017, underpinned by its core lending operations and higher net interest margins, Moody’s continued.
“MBT’s (Metrobank) funding and liquidity remain robust, reflected by its large base of current and savings deposits, which account for 62 percent of the bank’s total deposits as of the end of September 2018, as well as its large stock of liquid assets primarily in the form of cash and Philippine government securities,” it said.
Share prices of the banks rose on news of their affirmed credit ratings, with BDO rising 1.38 percent or P1.80 to close at P131.80 apiece, while Metrobank gained 0.18 percent or P0.15 to P82.50 per share.
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