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Moody’s affirms China Bank’s credit rating

MOODY’S Investors Service has maintained China Banking Corp.’s (China Bank) Baa2 credit rating with a stable outlook, citing the lender’s strong capitalization and profitability.

“The international credit watcher cited stable capitalization and profitability, which support business expansion, and sound liquidity as China Bank’s credit strengths,” the bank said in a disclosure to the local bourse on Wednesday.

China Bank’s rating from Moody’s is a notch higher than the minimum investment grade and is in line with the country’s sovereign credit rating.

“The improvement in the bank’s capital since 2019 has been higher than the average of its peers, reflecting a combination of low loan growth from the pre-pandemic level in 2019 and increased profitability,” China Bank quoted Moody’s to have said in its report.

China Bank booked a higher net profit in the first three months of the year as interest earnings improved and loan loss provisioning declined.

The lender’s net income was at P4.9 billion in the first quarter, rising by 37% from P3.6 billion in the same period of 2021.

The bank’s common equity Tier 1 (CET1) capital ratio has also increased through the years: from 13.8% in 2020, to 14.9% in 2021, and to 15.5% as of end-March 2022

Its assets likewise grew by 12% year on year to P1.1 trillion as of end-March.

As of March, China Bank reported higher core operating profitability of 1.9%. The lender’s return on average assets was at 1.7%, the highest among its rated domestic peers.

Moody’s said the improvement in the bank’s profitability in the first quarter of 2022 was driven by a higher net interest margin (NIM), rising to 4.3% during the period from 4.2% a year prior.

This was driven by low interest and an easy liquidity environment, which led to a significant reduction in funding costs, the credit rater said.

Meanwhile, the bank may face asset quality risks resulting from the concentrated loan book and a modest funding profile, with a relatively high share of corporate deposits, Moody’s said.

Business loans, which are less susceptible to economic disruptions, comprised 80.1% of China Bank’s gross portfolio. The bank’s nonperforming loans (NPL) ratio also improved to 2.4% year on year from 3.8% as of end-March.

“While China Bank’s market funds/total tangible assets is lower than most of its peers that Moody’s rate, the bank’s liquid assets/total tangible assets remained largely stable at 30.8% as of end-March 2022,” China Bank said.

Moody’s said it could upgrade China Bank’s baseline credit assessment “if the bank’s asset quality reverts to pre-pandemic levels and NIM improves in a rising interest rate environment.”

The debt watcher last week also affirmed its Baa2 long-term deposit ratings on Metropolitan Bank & Trust Co. and Bank of the Philippine Islands, also assigning a stable outlook.

China Bank’s shares closed unchanged at P27 apiece on Wednesday. — K.B. Ta-asan

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