The US$412 million total credit exposure of five Philippine banks to troubled South Korean shipbuilder Hanjin Heavy Industries & Construction Co. Ltd. is credit negative as the banks will need to incur additional credit charges, which in turn will reduce their profit, Moody's said in a Jan. 14 credit outlook.
The five banks are BDO Unibank Inc., Bank of the Philippine Islands, Land Bank of the Philippines, Metropolitan Bank & Trust Co. and Rizal Commercial Banking Corp., according to media reports.
Of the five banks, RCBC has the largest exposure to Hanjin's Philippine subsidiary, Hanjin Heavy Industries and Construction Philippines, at about US$140 million and will be the most impacted. Moody's expects RCBC's gross nonperforming loan ratio to increase to 4.3% from 2.2% after including its exposure to Hanjin, based on 2017 financials.
The other banks' exposures are smaller and the increase in their gross NPL ratios will also be smaller at between 15 basis points and 50 basis points.
Assuming a worst-case scenario under which the five banks make full provisions for their exposures, Moody's expects the credit costs as a percentage of the banks' pre-provision income to increase to between 20 basis points and 140 basis points, from 6 basis points to 26 basis points, based on their September 2018 results.
RCBC's profitability will be most negatively impacted and assumed credit losses for the worst-case scenario will likely reduce its capital ratio by about 50 basis points, the rating agency said.
Moody's still expects the affected banks' loss-absorbing buffers to remain robust as their common equity ratios were above the minimum capital requirements in the Philippines.