Moody’s affirms ratings of 3 Philippine banks

MANILA, Philippines — Moody’s Investors Service has affirmed the long-term deposit ratings of China Banking Corp., Philippine National Bank (PNB) and Security Bank Corp., citing strong capital position and stable profitability.

The deposit ratings for China Bank and Security Bank were kept at Baa2, which were likewise given a stable outlook.

“The affirmation of China Bank’s and Security Bank’s Baa2 ratings and baa3 baseline credit assessments  reflect the banks’ strong capital position that offsets their lingering asset risks, as well as their modest funding and adequate liquidity,” the debt watcher said.

According to the debt watcher, China Bank’s capitalization may continue to remain high over the next 12 to 18 months, while Security Bank’s capitalization may decrease marginally.

This is “in line with Moody’s Ratings expectations of their respective internal capital generation abilities and dividend payouts, as well as their accelerated loan growth,” it said.

The profitability of China Bank, as measured by its return on assets, also remained strong at 1.6 percent in 2023. This is supported by stable net interest margins (NIMs) and lower provisioning costs.

On the other hand, Security Bank’s ROA declined to 1.1 percent from 1.4 percent amid higher operating and provisioning costs.

“Moody’s Ratings expects both banks’ profitability to remain stable in 2024, as wider NIMs from higher yielding retail and small and medium enterprise (SME) loans and easing cost of funds, will offset higher credit costs,” the credit rater said.

The debt watcher also sees the non-performing loan (NPL) ratios of China Bank and Security Bank improving, but still higher than pre-pandemic levels.

It sees an NPL ratio of around two percent for China Bank and three percent for Security Bank amid lingering stress from the pandemic-impacted corporate and middle-market accounts.

“While new unseasoned loans could pose risks to asset quality in the banks’ expansion into these two segments, large loans to corporates will remain a structural concentration risk for both banks. However, these risks are mitigated by their tight underwriting standards and adequate capital buffers against any loan losses,” Moody’s said.

Meanwhile, the debt watcher revised the credit rating outlook of Lucio Tan-led PNB to positive from stable, as it reaffirmed its investment grade Baa3 rating.

“The change in outlook to positive reflects PNB’s stabilizing asset quality and improved profitability after a significant net interest margin expansion and lower provisioning costs in 2023,” Moody’s said.

The bank’s NIM expanded to 4.2 percent in 2023 from 3.6 percent mainly due to its effective cost management and higher asset yields. However, the bank’s yields remain the lowest among its domestic peers that are rated by Moody’s, the credit rater said.

PNB’s credit costs also improved to 0.9 percent in 2023 from 1.2 percent in 2022 amid the bank’s stabilizing asset quality.

“Increased lending margins from PNB’s expansion into higher yielding SME and retail segments will balance the higher credit costs in these portfolios,” Moody’s said.

“As such, Moody’s Ratings expects PNB’s profitability to remain largely stable, with return on assets hovering at around 1.5 percent over the next 12 to 18 months,” it said.

The bank’s NPL ratio picked up at 7.3 percent in 2023 from the 7.2 percent in 2022.

“Moody’s Ratings expects the bank’s NPL ratio to decline but remain above pre-pandemic levels over the next 12 to 18 months, as PNB continues to clean up its large pandemic-related NPL exposures, while managing risks arising from unseasoned loans in its expansion into the SME and retail segments,” it said.

The bank’s liquidity will also decline mildly from the current high level as its loan growth accelerates over the next 12 to 18 months, Moody’s added.