Moody's: RCBC on the right track in meeting Basel III guidelines

Rizal Commercial Banking Corp. is well on its way to meeting the higher capital requirements under Basel III agreement, Moody's Investors Service said Monday. The Philippine Bank disclosed on Feb. 15 that it plans to secure more funds by issuing new equity and dispose of its non-performing assets and to companies under the International Finance Corp. This will allow RCBC to meet the higher capital resources and allow it to meet the upcoming higher Basel III capital requirements starting next year, Moody's noted in its Credit Outloook on Monday. "The equity issuance will come in the form of a private placement to IFC Capitalization (Equity) Fund, L.P., of up to $100 million, the maximum of which would boost the bank’s Tier 1 capital ratio to 15 percent from 13 percent, based on September 2012 financials," according to Moody's. A mix of non-performing loans and “real or other properties acquired” (ROPA or the term commonly used for foreclosed properties), will be sold to Philippine Asset Growth One Inc., a special-purpose company formed by IFC, OPIF Corp. and ACP (Altus Capital Partners) Investments Ltd.   "Assuming RCBC continues to maintain its current annual credit growth rate of 16 percent [based on September 2012 financials], and at the same time sustains its growth in core profitability and earnings retention, we expect the bank’s Tier 1 capital to be 13 percent at the end of 2013, positioning it comfortably above the new capital requirement, said Moody's. “Starting January 2014, Philippine banks must maintain a minimum Tier 1 capital ratio of 10 percent, inclusive of capital conservation buffer," Moody's noted.   The banks non-performing loan ratio declined to 4.7 percent as of end-September 2012 from 5.2 percent in 2011 and 7.5 percent in 2009. Despite the seemingly improving level bad loans, Moody's said the ratio remained be higher than those of larger banks and the average of other Philippine banks it rates.   "As the terms of disposal of the non-performing assets have not yet been disclosed, we are unable to estimate the effect of the sale on the bank’s loan recovery and asset quality metrics,” the debt watcher noted. “However, we expect the bank’s asset quality metrics to improve to levels closer to the banking system average, and become more comparable to larger and higher rated Philippine banks such as Bank of the Philippine Islands, BDO Unibank Inc. and Metropolitan Bank & Trust Co. “This effort to accelerate the recovery of the bank’s non-performing assets will also allow the bank to free up capital for credit growth," it added. — VS, GMA News