Credit rating firm Moody’s sees some capital risks to Rizal Commercial Banking Corporation (RCBC) after its increased retail lending and one-time capital infusion from one of Japan’s major banks last year.

Moody’s report on Saturday said it changed the outlook for RCBC to stable from positive for two main reasons.

“This reflects our expectation that RCBC’s improvement in capitalization following Sumitomo Mitsui Banking Corporation’s capital infusion in July 2023 is unlikely to be sustained,” the credit rater said.

RCBC grew its capital by 31 percent last year through the P27-billion fund from Japan’s aforementioned bank or SMBC for a shorter term.

“The outlook change also considers moderation in its asset quality improvement, given the bank’s accelerated growth into riskier retail loans,” Moody’s added.

RCBC expanded loans by 15 percent to P622 billion last year, while the non-performing loans (NPL) ratio improved to 3.34 percent from 3.75 percent.

“Its new and unseasoned retail and SME loans could pose risks to its asset quality given the bank’s fast growth, while its large loans to corporates will remain a concentration risk,” Moody’s cautioned.

NPL ratio

Moody’s expects RCBC’s NPL ratio to stabilize around 3.5 to 3.7 percent over the next 12 to 18 months as the bank redesigns loan portfolio toward more balanced risks.

RCBC chief executive officer Eugene Acevedo said the bank will further maximize benefits from digital technologies to create appropriate products for each customer segment.

“We will intensify the use of artificial intelligence and data science across the bank to guide our product innovation and exceptional service delivery,” he said.

Given the loan growth, Moody’s shared capital ratios of RCBC remained strong at over 13 percent last year and in the first quarter of 2024.

RCBC posted a better Common Equity Tier 1 ratio of 14.7 percent last year following SMBC’s capital infusion. However, it decreased to 13.7 percent as of end-March this year as loan growth outpaced internal capital generation.

Lower return on assets

Thus, Moody’s also said RCBC must monitor assets as it registered lower return on assets (ROA) in the first quarter at 0.7 percent from 1.3 percent seen in the same period in 2023.

“The bank’s gains on assets sold, such as foreclosed properties, accounted for 8 percent of its total operating income in 2023. RCBC does not expect any material sales over the next few years, given its significantly reduced level of foreclosed properties as of the end of 2023,” Moody’s said.

The credit rater projects RCBC to maintain an ROA of about 0.9 percent for the rest of the year as it strives to maximize gains from assets while retail and small and medium business loans grow.

Still, Moody’s stressed RCBC remains highly liquid, driven by its modest deposit business and moderate reliance on money market funds at 7.2 percent.