Fitch affirms China Bank, RCBC, Security Bank ratings

Debt-watcher Fitch Ratings Inc. has affirmed the credit scores and stable outlooks for three Philippine banks.

 

China Banking Corp., Rizal Commercial Bank Corp. and Security Bank Corp. maintained their “BB" long-term issuer default ratings and “bb” viability scores, Fitch reported on Thursday. 

 

According to Fitch, a BB credit rating is basically "Speculative," noting that it indicates "... an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments."

 

A viability score of bb reflects a "speculative fundamental credit quality... and denotes moderate prospects for ongoing viability. A moderate degree of fundamental financial strength exists, which would have to be eroded before the bank would have to rely on extraordinary support to avoid default. However, an elevated vulnerability exists to adverse changes in business or economic conditions over time."

 

"The ratings reflect their higher risk appetite, adequate capitalization, sound funding and liquidity, and their small yet meaningful market shares,” Fitch said.

 

The viability ratings take into account structural issues within the local banking system like concentrated loan portfolios, conglomerate and family ownership and developing corporate governance standards. 

 

The outlooks remain stable given the sustained economic growth, fairly conservative regulatory environment, along with sufficient funding and liquidity supported by strong remittances.

 

'Too big to fail’

 

China Bank, RCBC and Security Bank qualify as domestic systemically important banks or D-SIBS, according to Fitch. 

 

Such banks are required to maintain additional capital or Common Equity Tier 1 (CET1) equivalent to 1.5 percent to 2.5 percent of their risk-weighted assets on top of the required 10 percent capital adequacy ratio. 

http://www.gmanetwork.com/news/story/518414/economy/moneyandbanking/phl-lenders-to-meet-capital-needs-of-banks-too-big-to-fail-fitch 

 

"The CET1 ratios of Security Bank and China Bank were both close to 14 percent at end-March, and that of RCBC improved to around 14 percent at end-June from 12 percent at end-2014,” Fitch noted.

 

The banks are expected to expand branch networks to support deposit and loan growth as well as undertake acquisitions to enhance franchises and market positions. 

 

Asset quality

 

Fitch considers Security Bank the strongest among the three banks in terms of asset quality.

 

"Nonetheless, its relative strength can quickly diminish if the bank's recent rapid growth, particularly in the consumer segment, leads to higher delinquencies and impairment costs,” Fitch said.

 

However, the debt-watcher noted China Bank's consolidated asset quality deteriorated after acquiring Planters Development Bank in 2014. 

 

"Its reported NPL ratio rose to 2.5 percent at end-March 2015 from 2.0 percent at end-2013, and there may be further deterioration emanating from the assets of the newly acquired bank,” Fitch noted. – Keith Richard Mariano/VS, GMA News