Moody’s Investors Service on Friday lowered its credit rating for Rizal Commercial Banking Corp. (RCBC), citing the lender’s weaker asset quality as reflected in its restructured loans.

RCBC’s deposit and senior unsecured ratings were downgraded to Baa3 – the lowest investment-grade rating – from Baa2.

“The downgrade is driven by weak asset quality and deterioration in capital,” Moody’s said in a note.

Meanwhile, the new rating’s outlook is stable, indicating that rating will likely be steady over the next 12 to 18 months.

“The outlook, where applicable, has been revised to stable from negative as higher core profitability will mitigate risks to asset quality,” it said.

RCBC’s Baseline Credit Assessment was also lowered to ba1 from baa3.

While RCBC’s gross non-performing loans (NPL) ratio dipped to 5.2% at the end of September from 5.4% at the end of 2020, Moody’s said weaker asset quality is showing up in the bank’s provision coverage, which declined to 64% from 74% over the same period.

The bank’s restructured loans make up about 6% of its portfolio at the end of September, which is also higher than other rated Philippine banks, further signaling deterioration in asset quality, Moody’s added.

The bank’s loan growth is also significantly higher at 13% compared to the 3% industry average, suggesting risk to asset quality, Moody’s added.

On the other hand, Moody’s believes that improvement in RCBC’s pre-provision income over the past two years due to operating cost controls is credit positive.

It added that RCBC’s funding and liquidity are expected to remain stable.

“The quality of RCBC’s deposits is weaker compared to the big three banks but comparable with the three smaller banks,” Moody’s said.

RCBC net profit rose 125% year-on-year to P2.01 billion in the third quarter, driven by the strong performance of core businesses.

RCBC closed at P19 Friday, down by 50 centavos. — Luz Wendy T. Noble