Fitch affirms ratings of 4 PHL banks

MANILA, July 25 (PNA) — Debt watcher Fitch Ratings on Friday affirmed the ratings of four Philippine banks on back of their improving core capitalization and loan loss reserves.

The banks that were affirmed of their ratings are China Banking Corporation (China Bank), Security Bank Corporation (Security Bank), Rizal Commercial Banking Corp (RCBC) and Union Bank of the Philippines (Union Bank).

However, Fitch at the same time withdraw its ratings on Union Bank “for commercial reasons.”

Ratings of the banks, including that of Union Bank before it was withdrawn, is at “BB-“ for the long-term issue default ratings (IDRs) and the viability rating is at “bb”. Outlook of these ratings is “Stable”.

The credit rating agency, in a statement, attributed its decision to affirms these ratings to the banks’ “satisfactory core capitalization and loan loss reserves relative to their ratings, as well as their sound funding, liquidity and domestic franchises as medium-sized players.”

”The ratings take into account the banks’ above-average risk appetite and incorporate the different degrees of structural issues faced by these four banks (as well as many major domestic banks), including large corporate loan concentrations, modestly reserved foreclosed assets, developing corporate governance standards, and the presence of families as controlling shareholders,” it said.

For one, the debt watcher said the ‘positive’ outlook on Union Bank’s ratings is due to the credit rating agency’s “expectation that its (Union Bank’s) credit profile would improve over time.”

It noted that the bank has diversified particularly after it acquired the Cebu-based thrift bank City Savings Banks, which is focused on extending loans to teachers, in 2013.

It, on the other hand, cited that benefits of this acquisition will take time.

”This acquisition has also contributed to UnionBank growing its loan book well above industry averages, which could give rise to asset quality concerns in time if not managed appropriately,” it also said.

Relatively, the credit rating agency said the ‘stable’ outlook on China Bank, Security Bank, and RCBC’s ratings “reflect Fitch’s expectation that their credit profiles will likely stay steady over the near to medium term.”

”This is supported by a robust domestic economy, manageable corporate leverage and supportive domestic interest rates,” it said.

It noted that the “healthy domestic consumption and growth in the manufacturing and services sectors should continue to drive domestic demand.”

”This, together with strong foreign inflows, including rising overseas remittances are contributing to the brisk expansion of credit activities, especially in property lending, and could result in disproportionate asset price inflation if left unchecked,” it said.

Fitch said some of these banks “have been more acquisitive” in the past two to three years partly to expand their branch networks and improve franchises.

”While such acquisitions are part of the banks’ strategy to strengthen their franchise and market share, they are not without risk, not least because the targets are generally weaker,” it said.

Also, the debt watcher said loan growth of the said banks, including to the small and medium enterprise (SME) sector, has also increased and it is now above industry average.

It, on the other hand, pointed out that “although any meaningful progress in this area through organic growth is likely only over the medium term.”

”In Fitch’s view, these banks are in a good position to weather reasonable deterioration in the operating environment due to their sound funding profiles and high loss-absorption capacity,” it said.

Also, the debt watcher said the Bangko Sentral ng Pilipinas (BSP) is not amiss in the checking the industry’s exposure to the real estate sector noting the 20 percent cap on bank’s loan portfolio.

”However, it may change this limit or the types of loans covered to facilitate further economic growth and better manage various property-related risks,” it said.

”The central bank has already taken some measures to avoid excessive risks building up within the system, and Fitch expects further measures to be taken should risks continue to rise,” it added. (PNA)