Fitch: P1-B fine will not hurt RCBC’s medium term financial profile

Bangko Sentral ng Pilipinas fined the Rizal Commercial Banking Corp. in connection to the money laundering case involving $81 million from the Bangladesh Bank Fitch Ratings says the penalty accounts for 20 percent of the bank’s 2015 net profit but expects it to be a ‘one-off’ loss for the bank

MANILA--Fitch Ratings does not expect the medium term financial profile of Rizal Commercial Banking Corp. (RCBC) to be affected by the P1-billion fine slapped against it by the central bank in connection to the $81-million money laundering case it got involved with earlier this year.

“We believe RCBC will continue to strengthen its operational policies and controls to avoid similar incidents in future,” it said, noting that the penalty, the largest to date imposed by the Bangko Sentral ng Pilipinas (BSP), is “significant relative to its (RCBC’s) net income.”

Income

In the first half of 2016, the banking arm of the Yuchengco group reported an unaudited consolidated net income of P2.61 billion, up three percent from the P2.53 billion for same period in 2015.

RCBC, the ninth largest in terms of assets, ended 2015 with an unaudited consolidated net income of P5.1 billion, up 15.2 percent year-on-year.

Fitch said the penalty imposed on RCBC accounts for about 20 percent of the bank’s 2015 net profit.

It can be recalled that four accounts with the RCBC Jupiter-Makati branch directly received funds from the Bangladeshi central bank’s account with the Federal Reserve of New York in early February.

The funds where consolidated into a single account, allegedly owned by businessman Willam Go, who denied owning it.

Actions

The funds were withdrawn and exchanged into pesos through remittance firm Philrem Services Corp., which delivered it to junket operator Kim Wong.

Wong has returned $5.63 million and P488 million to the Anti-Money Laundering Council (AMLC), after he promised to do so during a Senate hearing held to investigate the money laundering.

The BSP has cancelled Philrem’s certificate of registration as a remittance agent “due to significant violations” of the reportorial requirements for remittance entities.

”We believe this demonstrates the regulator’s firm view of the seriousness of the incident, in which $81 million siphoned from the Bangladeshi central bank’s account with the Federal Reserve Bank of New York were coursed through accounts at RCBC, among other conduits,” Fitch said.

The credit rater said the central bank’s decision showed that the BSP “acknowledged RCBC’s efforts to improve its antimoney laundering risks management systems and governance.”

”We expect such efforts to continue, which should help to strengthen both RCBC and the banking sector,” it said.

Still profitable

On the penalty’s impact on the bank’s profitability, Fitch believes that this would be “a one-off and we expect RCBC to remain profitable in 2016.”

”The charge on its own does not significantly weaken the bank’s medium-term profitability or its existing capital, funding and liquidity strengths,” it said.

Other effects on the bank’s credit rating such as loss of key correspondent banking relationships “appear to have been averted since the details of the case first became public in Q1 (1st quarter) ‘16,” it added.