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RCBC dollar notes get Moody’s stable rating

Moody’s Investors Service has assigned a Baa2
rating to Rizal Commercial Banking Corp.’s (RCBC, Baa2 stable, baa3) proposed dollar denominated senior unsecured notes, issued under its $2 billion Euro Medium-Term Note (EMTN) program.
The bond will be listed on the Singapore Stock Exchange.
The outlook on the ratings, where applicable, is stable.
The senior debt rating is subject to receipt of final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents reviewed by Moody’s.
The Baa2 foreign currency senior unsecured MTN debt rating is underpinned by RCBC’s baa3 baseline credit assessment (BCA) and a one-notch uplift to reflect Moody’s assumption that the bank will receive support from the government (Baa2 stable) in times of need.
The bank’s BCA takes into account its intrinsic strengths that stem from its well-established niche in the corporate middle market and special economic zones, as well as potential synergies from its affiliation with the Yuchengco Group of companies.
The rating also takes into account its small market presence and steady earnings; the latter of which is supported by a stable capital position.
RCBC’s deposit and debt ratings of Baa2 are at the same level as the Philippines’ sovereign rating. It is unlikely that RCBC will be rated above the sovereign, because of the high correlation of risk between the bank and the sovereign.
The stable outlook on the sovereign’s rating suggests that the upside and downside risks are balanced.
The following factors could result in an upward revision of the bank’s BCA: (1) a proven ability to maintain its asset quality metrics; (2) its ability to maintain capitalization levels and loan loss reserves in line with that of its domestic peers; and (3) evidence that the bank can continue to reduce its credit costs and improve its risk-adjusted profitability to support capital generation.
RCBC’s BCA and consequently its ratings could be lowered if: (1) aggressive expansion or acquisitions lead to a significant increase in the bank’s risk profile; (2) its operating environment weakens significantly or underwriting practices become lax, resulting in a significant increase in nonperforming assets; (3) its capital buffers fall materially; (4) the operating environment for banks in the Philippines deteriorates as reflected by a slowdown in the country’s economic growth or a rapid increase in leverage and/or a deterioration in the funding and liquidity conditions for the banking system.
A downgrade of the Philippine’s sovereign rating will also result in a downgrade of the bank’s ratings.

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