RCBC gets stable rating from Fitch

Fitch Ratings has revised the outlook of the Rizal Commercial Banking Corp.’s (RCBC) ratings to stable, from positive, and affirmed the bank’s ratings on certain debt notes.

“While RCBC’s performance has improved substantially over the past two years thereby bridging the gap with its higher rated peers, the outlook revision to stable is premised on the agency’s expectation that sustaining further improvements may be difficult in the near to medium term, due to the more challenging operating environment,” Fitch said in its report.

RCBC has been disposing of its bad assets to bring down its gross non-performing loans (NPL) ratio to 6.5 percent in the first semester of 2008, from 8.3 percent in 2006. Foreclosed properties declined as a proportion of total assets to three percent in the first semester this year, from 4.5 percent in 2006.

However, Fitch noted that less benign credit conditions may hamper further improvements and possibly result in some deterioration to the bank’s asset quality.

While the bank’s NPLs were well reserved at 135 percent and foreclosed properties reserved above the banking system average at 20 percent at the end of the first semester, RCBC is still deferring losses of P4.8 billion on certain bad asset disposals over a 10-year period as allowed by the regulator.

Equity nearly doubled to P22 billion in the first six months of 2008 versus 2005 as a result of various fund-raising exercises.

Fitch Ratings considers RCBC’s capital position to be fairly constrained given the impact of the deferred losses that are still being amortized, and the possibility of further loan losses in a difficult operating environment going forward.

Higher net interest income due to an expanding loan base coupled with increased fee-income and improved cost efficiency has helped to cushion RCBC’s fall in trading profits, keeping pre-provision return-on-assets (ROA) at above two percent.

However, profitability may be difficult to sustain with lower growth opportunities expected amid the slower economic outlook. This is already reflected in the bank’s net ROA, which moderated to 1.25 percent from 1.4 percent in 2007.

Meanwhile, the bank’s long-term foreign and local currency Issuer Default Ratings was rated at BB minus, individual rating at D, support rating at 3, $150 million senior notes at BB minus, P4.5 billion and P7 billion subordinated notes at B+, and S100 million perpetual hybrid notes at B minus.

“The support rating floor has also been affirmed at BB minus, denoting that RCBC’s long-term IDR would not be lowered beyond this level in the absence of any changes to the assumptions underpinning the bank’s Support Rating,” it added.