RCBC downgraded but stable — CreditSights

Global credit rater CreditSights downgraded Rizal Commercial Banking Corporation to underperforming banks that have been challenged by higher funding costs but were still stable in the first quarter this year.

In its report on Friday, CreditSights said RCBC’S debt instruments for obtaining more capital have traded wide, indicating riskier borrowings.

“It was trading 15 to 20 basis points wider than UnionBank and Metrobank earlier in March despite its shorter tenor, which we thought fairly captured its risks,” the report said.

CreditSights analyzed seven Philippine banks and deemed these three other banks as underperforming or second-tier: Union Bank of the Philippines (UnionBank), Security Banking Corporation and Philippine National Bank.


Interest-based transactions

Its report said these banks earn less from interest-based transactions like loans and spend more to fund savings and certificates of deposits as shown by their lower net interest margins or NIM.

RCBC faces similar headwinds as the other second-tier banks and unlike its peers, it failed to stave off another large sequential decline in its NIM so core operating performance was challenged this quarter.

As remedies, these banks limited loans to certain customer segments and trimmed high-cost time deposits to reach better NIMs.

Amid the high inflation and interest rates in the first quarter, RCBC grew its profit to P3.6 billion, with an 18-percent increase in business loans, higher than the 14 percent in consumer loans.

These were slower than the 27-percent jump in deposits.

Capital slightly grew by 7 percent.

RCBC had said its capital and common equity ratios would increase in the next quarters by 300 to 400 basis points once it receives the P27.1-billion capital infusion from Sumitomo Mitsui Banking Corporation, one of Japan’s largest banks.

“The second-tier banks have continued to be relatively stable, but we are cautious given their focus on higher yielding but riskier segments.”

Meanwhile, Metropolitan Bank & Trust Company was upgraded to the performing banks or first-tier after it expanded capital.

Others in this category were BDO Unibank Inc. and Bank of the Philippine Islands.


First-tier banks managing fine

“We see the first-tier banks managing fine due to their larger more resilient corporate books, ability to grow and protect their NIMs as a result of their stronger competitive position and better established franchises, good capital and loss absorption buffers,” CreditSights said.

Metrobank grew its net income to P10.5 billion in the first quarter, with a 29-percent jump in net interest income.

BDO recorded P16.5 billion in profit, while BPI raked in P12.1 billion.

CreditSights expects consumer demand for medium to big purchases to temper “as households finally start feeling the pinch from the persistent inflationary backdrop.”

Inflation in April decelerated to 6.6 percent, still higher than the Bankgo Sentral ng Pilipinas or BSP’s target of 5.5 percent for this year.

“However, we still see uncertainty in the growth outlook as the full effect of the rate hikes this cycle has likely not worked itself through the system,” CreditSights said.

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