Banks’ credit rat­ings at risk from Han­jin

Business World - - Front Page - By Melissa Luz T. Lopez Se­nior Re­porter

HUGE LOAN EX­PO­SURES to trou­bled Han­jin Heavy In­dus­tries and Con­struc­tion Philip­pines (HHIC-Phil) could pull down credit rat­ings for the five Philip­pine banks con­cerned as its prob­lems would mean nar­rower prof­its for ab­sorb­ing pos­si­ble de­faults, Moody’s In­vestors Ser­vice said in a Jan. 14 note.

The debt watcher said credit risks from the South Korean ship­builder’s bank­ruptcy will drive credit costs higher, with re­ports peg­ging the amount at $412 mil­lion. Set­tle­ment of the un­paid debts was left hang­ing af­ter Han­jin filed for cor­po­rate re­ha­bil­i­ta­tion last week.

Moody’s an­a­lysts said this does not bode well for the rat­ings of Rizal Com­mer­cial Bank­ing Corp. (RCBC), sta­te­owned Land Bank of the Philip­pines (LAND­BANK), Met­ro­pol­i­tan Bank & Trust Co. (Metrobank), Bank of the Philip­pine Is­lands (BPI) and BDO Uni­bank, Inc. in their view.

“The ex­po­sures are credit neg­a­tive for the five Philip­pine banks be­cause they will need to in­cur ad­di­tional credit charges re­lated to HHIC-Phil, which will re­duce their profit,” Moody’s an­a­lysts Si­mon Chen and Shirley Zeng said in a credit out­look.

Moody’s rates these lenders at “Baa2,” which is one notch above min­i­mum in­vest­ment grade. This matches the rat­ing given to the Philip­pine gov­ern­ment and al­lows them to raise fund­ing from for­eign in­vestors at cheaper cost.

HHIC-Phil has main­tained a ship­yard at the Su­bic Bay Freeport Zone in Cen­tral Lu­zon since 2006 and had hired over 22,000 work­ers. Is­sues on worker safety have also hounded the ship­build­ing firm since it started op­er­a­tions here.

HHIC-Phil owes $140 mil­lion to RCBC, $80 mil­lion to LAND­BANK, $72 mil­lion to Metrobank and $60 mil­lion each to BDO and BPI.

“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’ pre-pro­vi­sion in­come will in­crease to be­tween 20 and 140 ba­sis points (bp), from six to 26 ba­sis points based on their Septem­ber 2018 fi­nan­cials,” the re­port read.

“The big­gest neg­a­tive ef­fect on prof­itabil­ity will be at RCBC.”

Moody’s an­a­lysts said they ex­pect the bank’s bad loans ra­tio to nearly dou­ble to 4.3% of the to­tal port­fo­lio from 2.2% in 2017 due to its huge Han­jin ex­po­sure.

The in­crease in non­per­form­ing loan ra­tios of the other four banks “will be smaller” at 15-50 bp, it added.

At the same time, the debt watcher said the banks in­volved can still weather this chal­lenge, as they have more than enough cap­i­tal buf­fers to keep a solid foot­ing.

“Al­though bank profit will be damp­ened by the ad­di­tional credit costs, we ex­pect that the af­fected banks’ loss-ab­sorb­ing buf­fers to re­main ro­bust,” Moody’s said, adding that “[f]or RCBC, our as­sumed credit losses for the worst-case sce­nario ex­ceed the bank’s pre-pro­vi­sion in­come and will re­duce its cap­i­tal ra­tio by around 50 ba­sis points.”

BSP Of­fi­cer-in-Charge Deputy Gover­nor Diwa C. Guini­gundo said on Fri­day last week that HHIC-Phil’s out­stand­ing debt is “neg­li­gi­ble” com­pared to to­tal in­dus­try loans. Lat­est cen­tral bank data showed that this rep­re­sents 0.24% of to­tal loans and 2.49% of for­eign cur­rency loans.

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