A major debt watcher has affirmed its ratings for Rizal Commercial Banking Corp, but has cut its outlook to "negative" from "stable" due to increased asset quality risks. The bank's large exposure to the retail segment is a key factor in this decision, as it poses a significant threat to its financial stability. This change in outlook suggests that a ratings downgrade is possible within the next 12-18 months.
The debt watcher has affirmed the bank's long-term and short-term foreign-currency deposit ratings, as well as its local-currency and foreign-currency counterparty risk ratings. The bank's baseline credit assessment and adjusted baseline credit assessment have also been affirmed. These ratings are based on the bank's modest solvency and average funding and liquidity, as well as the moderate likelihood of government support if needed.
The bank's retail loan portfolio has expanded rapidly over the last two years, growing by 40% in 2024 and 29.4% in 2025. However, this growth has also led to an increase in nonperforming loans, with the bank's nonperforming loan ratio rising to 5% from 4.3% a year ago. Credit costs have also increased, reaching 2.4% from 1.6% over the same period.
The debt watcher expects asset quality to deteriorate further over the next 12 to 18 months, which will likely lead to higher credit costs and erosion of capital. The bank's profitability is also expected to be affected, with its annualized return on tangible assets remaining modest compared to other banks. Despite this, the bank's capital position is expected to continue being a relative credit strength.
The bank's funding is modest, with a higher deposit concentration than most rated domestic peers and weaker access to funding. However, its liquidity position is a key strength, with a core liquidity ratio of 28.6% and a stable liquidity coverage ratio of around 150%. The debt watcher could downgrade the bank's deposit ratings and baseline credit assessment if asset quality deteriorates further or if higher credit costs cause its return on tangible assets and capital ratio to fall below certain thresholds.
A significant weakening in the bank's funding and liquidity would also be negative for its baseline credit assessment and ratings. Additionally, if the government's sovereign rating is downgraded, the bank's deposit ratings could also be downgraded. On the other hand, the debt watcher could return its ratings outlook for the bank to "stable" if its solvency, asset quality, and profitability metrics improve.
An upgrade of the bank's ratings is unlikely at this time, given the current negative outlook. The debt watcher will continue to monitor the bank's financial situation and adjust its ratings accordingly. The bank's ability to manage its asset quality risks and maintain its capital position will be key factors in determining its future ratings.
