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RCBC ‘most affected’ by hanjin loan exposure

/ 05:02 AM January 15, 2019

Yuchengco-owned Rizal Commercial Banking Corp. (RCBC) will be the most adversely affected by its loan exposure to the troubled Philippine shipbuilding arm of Korean conglomerate Hanjin, debt watcher Moody’s Investors Service said Monday.

Given that RCBC has the biggest exposure to Hanjin Heavy Industries and Construction Philippines (HHIC-Phil) of about $140 million, it “will therefore be most affected,” especially the bank’s profitability, Moody’s said in a report released on Monday titled “Banks’ exposure to troubled Hanjin will attract higher provisions, a credit negative.”

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“We estimate that RCBC’s gross nonperforming loan (NPL) ratio will almost double to 4.3 percent from 2.2 percent based on 2017 financials, after adding its exposure to HHIC-Phil,” Moody’s said.

“For RCBC, our assumed credit losses for the worst-case scenario exceed the bank’s preprovision income and will reduce its capital ratio by around 50 basis points,” it added.

Across the five banks with total exposure of about $412 million, which besides RCBC included BDO Unibank Inc., Bank of the Philippine Islands, Land Bank of the Philippines, as well as Metropolitan Bank and Trust Company, Moody’s said their exposures were “credit negative … because they will need to incur additional credit charges related to HHIC-Phil, which will reduce their profit.”

“The increase in gross NPL ratios for the other four banks will be smaller at between 15 and 50 basis points,” Moody’s said.

“Assuming the worst-case scenario in which the banks make provisions for their bad exposures in full because of the unsecured nature of the facilities extended, we expect that credit costs as a percentage of the banks’ preprovision income will increase to between 20 and 140 basis points, from six to 26 basis points based on their September 2018 financials,” according to Moody’s.

The debt watcher deemed that the affected banks’ profits “will be dampened by the additional credit costs” even as their loss-absorbing buffers would “remain robust.”

“The banks’ tangible common equity ratios were between 11 percent and 16 percent as of the end of September 2018, and above the minimum capital requirements in the Philippines,” Moody’s noted. —BEN O. DE VERA

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