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Rating Action:

Moody's places RCBC's long-term ratings under review for upgrade

18 Dec 2014

Singapore, December 18, 2014 -- Moody's Investors Service has placed under review for upgrade Rizal Commercial Banking Corporation's (RCBC) foreign currency deposit and senior unsecured ratings on its euro medium term notes (EMTN) program, as well as its D- standalone bank financial strength rating (BFSR), which is equivalent to a baseline credit assessment (BCA) of ba3.

The review for upgrade follows the company's announcement on 17 December that it has entered into a definitive agreement with Cathay Life Insurance Co., Ltd (Baa2 positive), whereby Cathay Life will acquire an approximate 20% stake in RCBC. The acquisition comprises around 124 million newly subscribed shares, and around 156 million existing shares from Hexagon Investments B.V.(unrated), an entity controlled by funds advised by CVC Asia Pacific Limited (unrated) and International Finance Corporation (Aaa stable).

RATINGS RATIONALE

The review for upgrade was triggered by RCBC's announcement on 17 December that the company has entered into a definitive agreement with Cathay Life whereby the latter will acquire an approximate 20% stake in RCBC. The transaction is subject to regulatory approvals and is expected to close by the end of the first quarter of 2015. We expect to conclude the review at that time.

The private placement to Cathay Life is credit positive for RCBC, because it will improve its core capitalization and loss-absorbing buffers, while enhancing its ability to capture its targeted credit growth for 2015.

Following Cathay Life's subscription to the new shares, RCBC's reported pro forma core equity Tier 1 ratio (CET1) as of September 2014 will increase to 13.9% from 11.5%. This increase will bring the bank's capitalization in line with some of its largest Philippine peers and significantly above the central bank's minimum CET1 requirement under Basel III of 8.5% (including a 2.5% capital conservation buffer).

In addition, the review for upgrade reflects the ongoing improvements in the bank's credit profile, and the expectation that it will continue to improve, especially once it is able to implement its capital raising plan.

Moody's views the bank's standalone financial profile as strong for its ba3 BCA. The review for upgrade of RCBC's D- BFSR considers the bank's improved asset quality as a result of the sale of PHP4.8 billion in legacy non-performing loans and non-performing assets in 2013.

At the same time, Moody's notes that the bank's capital buffer has improved, following private placements last year that raised a total of PHP8.2 billion. These transactions have improved RCBC's overall credit profile, which is now in line with that of other ba2 and ba3 regional peers.

The bank's ability to implement its capital raising plans and maintain capital levels above the minimum capital requirements under Basel III will be key to its ability to support its business growth targets.

WHAT COULD CHANGE THE RATING UP/DOWN

Given the review for upgrade, an upward revision of its BCA would likely lead to an upgrade of its ratings, assuming that its credit metrics remain robust.

The following factors could lead to an upward revision of RCBC's BCA: (1) a high level of loss absorption capacity, as reflected by a Tier 1 ratio of above 12%; (2) a proven ability to maintain non-performing assets (non-performing loans and foreclosed assets) at below 20% of equity and loan loss reserves; and/or (3) evidence that it can continue to rein in credit costs and improve its risk-adjusted profitability, reflected by net income above 2% of average risk-weighted assets.

RCBC's preferred stock rating is linked to its BCA, and could be upgraded if its BCA is raised.

Given the review for upgrade, downward rating pressure is unlikely over the near term.

Nevertheless, the bank's BCA could be lowered if: (1) aggressive organic expansion or acquisitions result in a significant increase in its risk profile; and/or (2) its operating environment weakens significantly or underwriting practices become lax, resulting in a significant increase in non-performing assets (non-performing loans and foreclosed assets), in turn undermining its loss absorption capacity; and/or (3) there is a material decline in its capital buffers, such that its Tier 1 ratio falls below 10%.

The ratings of RCBC are as listed below.

BFSR under review for upgrade from D-, which is equivalent to a ba3 BCA.

Long-term foreign currency deposits under review for upgrade from Ba2.

Long-term foreign currency MTN program under review for upgrade from (P)Ba2.

Foreign currency senior unsecured debt under review for upgrade from Ba2

Foreign currency preferred stock under review for upgrade from B3 (hyb)

Short-term foreign currency deposit rating of NP.

Short-term foreign currency MTN program rating of (P)NP.

The principal methodology used in this rating was Global Banks published in July 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Manila, Rizal Commercial Banking Corporation reported total assets of PHP422 billion ($9.5 billion) as of 31 December 2013.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alka Anbarasu
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's places RCBC's long-term ratings under review for upgrade
No Related Data.
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