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February 8, 2008 |
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RCBC: Fitch Puts B+ Long-Term Rating on Subordinated Notes Fitch Ratings has assigned a Long-term rating of 'B+' to hilippine-based Rizal Commercial Banking Corp's proposed issue of Philippine peso denominated subordinated notes due 2018, callable with step-up in 2013 of up to PHP7 billion. The rating on the issue -- which is intended to qualify for Lower Tier-2 Capital as per the Bangko Sentral ng Pilipinas (BSP) guidelines -- is one notch below RCBC's Long-term local currency Issuer Default Rating of 'BB-', which is on a Positive Outlook; this is in accordance with Fitch's criteria of rating subordinated debt instruments of financial institutions. The Notes will be direct, unsecured and subordinated obligations of RCBC, and will rank pari passu with all subordinated debts that qualify as Lower Tier-2 Capital. The rights of the Noteholders of the proposed issue will be subordinated to the claims of depositors and other senior creditors but senior to share capital and Tier-1 Capital Securities. The net proceeds would be used to refinance RCBC's existing subordinated notes and for general corporate purposes. At end-September 2007, RCBC's gross NPL ratio stood at 8.4% while its investment properties (largely foreclosed properties) accounted for 3.6% of total assets (end-FY06: 8.7% and 4.5%, respectively). Despite having disposed its non-performing assets, the bank is still deferring the losses on disposal of PHP4.5 billion over the next eight to 10 years. Notwithstanding the more punitive charges on RCBC's sizeable non-performing assets as per Basel II guidelines which have been in effect effective since July 2007, the decline in RCBC's total CAR from 20.3% at end-FY06 to 18.8% at end-September 2007 was somewhat slight thanks to fresh equity raised in 2007. RCBC's equity position strengthened to PHP28.3 billion, up from PHP23.7 billion over the same period. On a positive note, amid declining interest rates, RCBC's cost of funds were lowered -- due also to its deposit mix strategy -- and higher trading gains on government debt securities were recorded, which resulted in an increased pre-tax ROA of 1.8% over the first nine months of FY07 (FY06: 1.2%). Under the helm of its new CEO Lorenzo Tan since April 2007, RCBC intends enlarging its market share in the competitive consumer and SME lending segments through a wider distribution platform. Pending BSP approval, its recent acquisition of smallish Merchants Savings and Loan Association, Inc (0.3% of RCBC by assets) which has 21 branches and eight ATMs is a step in this direction. RCBC was formed in 1960 and listed on the local bourse in 1986. The universal bank maintains a network of 297 branches and 289 ATMs. The conglomerate Yuchengco group has a controlling stake in the bank. Fitch points out that the credit rating does not directly address any risk other than credit risk and that the price of securities such as the ones that are proposed to be issued may fluctuate as they are to be listed. In particular, these ratings do not deal with the risk of loss due to changes in market price or other market conditions. |
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