MOODY’S RATINGS has affirmed the ratings of three Philippine banks and revised its outlook for one, it said late on Tuesday.

Moody’s affirmed its “Baa2/P-2” long-term and short-term deposit and issuer ratings for China Banking Corp. (China Bank) and Security Bank Corp. and maintained its stable outlook for both, it said in a statement.

The debt watcher likewise retained the “Baa3/P-3” long-term and short-term deposit and issuer ratings for Philippine National Bank (PNB) and raised its outlook to “positive” from “stable,” Moody’s said in a separate statement.

Moody’s said it expects China Bank’s capitalization to remain stable, while Security Bank’s is expected to decrease marginally over the next 12-18 months in line with each bank’s internal capital generation abilities and dividend payouts, as well as their accelerated loan growth.

China Bank’s and Security Bank’s capitalization, as denoted by common equity to risk-weighted assets, stood at 14% and 17% at end-2023, respectively.

The debt watcher expects both banks’ profits to remain stable this year as they are expected to benefit from higher-yielding retail and small and medium enterprises (SME) loans and amid easing cost of funds despite elevated interest rates.

In terms of asset quality, the two banks’ nonperforming loan (NPL) ratios are seen improving while remaining higher than pre-pandemic levels.

Moody’s Ratings expects China Bank’s NPL ratio to be at 2% and Security Bank’s to be at 3% amid their pandemic-impacted corporate and middle-market accounts as well as their expansion into the riskier retail and SME segments.

The credit rater also expects the banks’ liquidity to remain adequate.

“The banks’ deposit franchises remain modest, with higher reliance on market funds compared with its domestic rated-peers, at 8% of total banking assets for China Bank and 12% for Security Bank as of end-2023,” it added.

Moody’s said upgrades to the banks’ credit ratings are unlikely as they are at the same level of the Philippines’ sovereign rating.

Meanwhile, Moody’s Ratings said it upgraded its ratings outlook for PNB amid a significant expansion in the bank’s net interest margin and lower provisioning costs.

The debt watcher also said PNB’s profitability will remain largely stable as its expansion into the SME and retail lending segments will help offset higher credit costs.

Meanwhile, the bank’s NPL ratio is expected to decline but remain above pre-pandemic levels in the next 12-18 months as it continues to clean up its pandemic-related exposures and manage risks from its expansion into the SME and retail segments, Moody’s said.

The debt watcher expects the PNB’s capital to decline to a “still-strong” level as it sees faster loan growth in the next 12-18 months, while its liquidity may weaken amid accelerated loan growth in the next 12-18 months.

Funding remains a credit strength for PNB, Moody’s noted, amid its lower cost of funds compared to the top three banks in the country. This is supported by PNB’s high share of current and savings account deposits.