Moody’s Ratings has affirmed Philippine National Bank’s (PNB) Baa3/P-3 long-term (LT) and short-term (ST) foreign currency (FC) and local currency (LC) deposit ratings, its Baa2/P-2 LT and ST FC and LC Counterparty Risk Ratings as well as its Baa2(cr)/P-2(cr) LT and ST Counterparty Risk Assessments.
Moody’s Ratings has also affirmed the bank’s Baseline Credit Assessment (BCA) and Adjusted BCA at ba1.
At the same time, Moody’s Ratings has affirmed PNB’s FC senior unsecured medium-term note program rating at (P)Baa3 and its FC senior unsecured rating at Baa3.
Moody’s Ratings has changed the outlooks on the LT deposit and senior unsecured ratings to positive from stable.
The ratings agency said the change in outlook to positive reflects PNB’s stabilizing asset quality and improved profitability after a significant net interest margin (NIM) expansion and lower provisioning costs in 2023.
PNB’s reported NIM expanded to 4.2 percent from 3.6 percent in 2023, driven by its effective management of cost of funds and higher asset yields, although the bank’s yields remain the lowest among its domestic rated peers’.
Its credit costs improved to 0.9 percent from 1.2 percent over the same period, in line with the bank’s stabilizing asset quality. Increased lending margins from PNB’s expansion into higher yielding small and medium enterprise (SME) and retail segments will balance the higher credit costs in these portfolios.
As such, Moody’s Ratings expects PNB’s profitability to remain largely stable, with return on assets hovering at around 1.5 percent over the next 12-18 months.
PNB’s non-performing loan (NPL) ratio remained stable at 7.3 percent as of end-2023, compared with 7.2 percent the year before, but improved significantly from 10.8 percent as of end-2021.
Moody’s Ratings expects the bank’s NPL ratio to decline but remain above pre-pandemic levels over the next 12-18 months, as PNB continues to clean up its large pandemic-related NPL exposures, while managing risks arising from unseasoned loans in its expansion into the SME and retail segments.
The bank’s Common Equity Tier 1 (CET1) ratio increased to 16.9 percent as of end-2023 from 14.6 percent the year before, driven by its substantial improvement in profits and only modest balance sheet growth in the year. Its capital will decline to a still-strong level as its loan growth accelerates over the next 12-18 months.
Funding remains a credit strength to PNB, with a lower cost of funds compared with the big three Philippine banks’ despite elevated interest rate environment, helped by its high share of current and saving account deposits at 83 percent as of end-2023. Its liquidity will decline mildly from the current high level as loan growth accelerates over the next 12-18 months.
PNB’s Baa3 ratings are one notch above its ba1 BCA, reflecting a high likelihood of support from the Philippine government (Baa2 stable) when needed, given the bank’s high systemic importance as reflected by its 5 percent share of total system deposits as of end-2023 and its strong position in the Philippine remittance market.
Moody’s Ratings could upgrade the bank’s ratings and BCA if its asset quality strengthens significantly, with its NPL ratio declining to below 6 percent and credit costs sustained close to the 2023 level, or its return on tangible assets sustained at above 1 percent over the next 12-18 months.
