By Melissa Luz T. Lopez, Senior Reporter
MOODY’S INVESTORS Service kept its credit ratings for BDO Unibank, Inc. and Metropolitan Bank & Trust Co. (Metrobank), vouching for their sound footing despite loan defaults from an embattled Korean shipbuilder.
In a statement sent yesterday, Moody’s affirmed its “baa2” rating with “stable” outlook for local and foreign currency deposit ratings of the two biggest banks in the Philippines.
This credit score is one notch above minimum investment grade, which assures foreign investors that these lenders are on good financial footing. In turn, this would allow the lenders to borrow or raise fresh funding at cheaper borrowing costs.
The ratings also match the “Baa2” sovereign rating given to the Philippine government, last affirmed in July 2018.
The bank ratings stood unchanged given the debt watcher’s expectation of a “very high probability” for the banks to receive systemic support from the Philippine government “in times of need,” such as a bailout when things go south.
Hanjin Heavy Industries and Construction Philippines, the biggest investor in Subic Bay Freeport, is currently under receivership after the South Korean shipbuilder filed for corporate rehabilitation on Jan. 8. This leaves $412 million debts from five local banks in limbo, which includes $70 million owed to Metrobank and $60 million from BDO.
In a previous report, Moody’s said these Hanjin loan defaults will be “credit negative” for banks, especially for smaller lenders as it would likely reduce profits as they cover the possible defaults.
However, Moody’s said BDO still enjoys a sound position drawn from its “domestically focused” and growing franchise, stable asset quality and loan loss buffers, above-minimum capital buffers, stable profits with gradual increases in interest margins, and a robust funding and liquidity profile.
On the other hand, the rating also considers downside risks drawn from an “unseasoned loan book” and “high concentration risk.”
BDO reported a P21.5-billion net income as of end-September, while problem loans stood at a measly 1.1% share of total credit lines during the period. Meanwhile, Metrobank’s nine-month income totalled P16.8 billion, with problem debts at 1.2%.
Moody’s also kept its credit rating for Metrobank, citing the Ty-owned lender’s robust capital and liquidity, strong presence in both corporate and retail segments, and stable asset quality. In contrast, a “relatively high” borrower concentration puts the bank to “single-name” credit risks, the debt watcher added.
Looking ahead, Moody’s said they are unlikely to bump up the two banks’ credit ratings unless the Philippines’ credit ratings rise further.
For BDO, the debt watcher said the bank should keep growing while keeping loan quality and profits stable. A “consistent decrease” in Metrobank’s non-performing assets and soured loans may also trigger a credit rating upgrade in the future.