Hanjin Heavy default to dent banks' profits
Published Jan 14, 2019 12:00 am
By Lee C. Chipongian
The five local banks affected by South Korean shipbuilder in Subic Hanjin Heavy Industries and Construction Philippines’ bankruptcy can absorb the credit losses, according to credit rating agency, Moody’s Investor Service.
“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 analysts said in a commentary Monday.
Simon Chen, Moody’s vice president and senior analyst, and associate analyst Shirley Zeng, said the affected banks which they rate – BDO Unibank, Inc. Bank of the Philippine Islands (BPI), Land Bank of the Philippines (LandBank), Metropolitan Bank & Trust Company (Metrobank) and Rizal Commercial Banking Corp. (RCBC) – will all have some profit hits. The blow will depend on much are they exposed in Hanjin.
“The exposures are credit negative for the five Philippine banks because they will need to incur additional credit charges related to HHIC-Phils. (Hanjin Heavy Industries and Construction Philippines) which will reduce their profit,” said Moody’s analysts. RCBC has the largest exposure with $140 million and “will therefore be most affected.”
In comparison, government-controlled Landbank has about $80 million exposure in Hanjin, Metrobank has $72 million while BDO and BPI has $60 million each, according to Moody’s. BPI, however, clarified in an email that their exposure is only $52 million in the shipbuilder.
“Consequently, we estimate that RCBC's gross nonperforming loan (NPL) ratio will almost double to 4.3 percent from 2.2 percent based on 2017 financials, after adding its exposure to HHIC-Phils. The increase in gross NPL ratios for the other four banks will be smaller at between 15 and 50 basis points,” said Chen and Zeng.
“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, from six to 26 basis points based on their September 2018 financials. The biggest negative effect on profitability will be at RCBC,” they added.
Moody’s said the banks’ tangible common equity ratios were between 11 and 16 percent as of the end of September 2018, and above the minimum capital requirements in the Philippines. “For 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.”
The Bangko Sentral ng Pilipinas (BSP), in a statement issued Friday night, reassured the public that the banking system is adequately capitalized to deal with the $412-million Hanjin debt restructuring petition filed before the Regional Trial Court in Olongapo City last week.
“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 analysts said in a commentary Monday.
Simon Chen, Moody’s vice president and senior analyst, and associate analyst Shirley Zeng, said the affected banks which they rate – BDO Unibank, Inc. Bank of the Philippine Islands (BPI), Land Bank of the Philippines (LandBank), Metropolitan Bank & Trust Company (Metrobank) and Rizal Commercial Banking Corp. (RCBC) – will all have some profit hits. The blow will depend on much are they exposed in Hanjin.
“The exposures are credit negative for the five Philippine banks because they will need to incur additional credit charges related to HHIC-Phils. (Hanjin Heavy Industries and Construction Philippines) which will reduce their profit,” said Moody’s analysts. RCBC has the largest exposure with $140 million and “will therefore be most affected.”
In comparison, government-controlled Landbank has about $80 million exposure in Hanjin, Metrobank has $72 million while BDO and BPI has $60 million each, according to Moody’s. BPI, however, clarified in an email that their exposure is only $52 million in the shipbuilder.
“Consequently, we estimate that RCBC's gross nonperforming loan (NPL) ratio will almost double to 4.3 percent from 2.2 percent based on 2017 financials, after adding its exposure to HHIC-Phils. The increase in gross NPL ratios for the other four banks will be smaller at between 15 and 50 basis points,” said Chen and Zeng.
“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, from six to 26 basis points based on their September 2018 financials. The biggest negative effect on profitability will be at RCBC,” they added.
Moody’s said the banks’ tangible common equity ratios were between 11 and 16 percent as of the end of September 2018, and above the minimum capital requirements in the Philippines. “For 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.”
The Bangko Sentral ng Pilipinas (BSP), in a statement issued Friday night, reassured the public that the banking system is adequately capitalized to deal with the $412-million Hanjin debt restructuring petition filed before the Regional Trial Court in Olongapo City last week.