Bank of Commerce (BankCom), the banking affiliate of San Miguel Corporation (SMC), was assigned an Issuer Credit Rating of PRS Aa (corp.), with a Stable Outlook, by Philippine Rating Services Corporation (PhilRatings).
A company rated PRS Aa (corp.) differs from the highest rated corporates only to a small degree, and has a strong capacity to meet its financial commitments relative to that of other Philippine corporates. A Stable Outlook indicates that a rating is likely to be maintained in the next 12 months.
PhilRatings said the assigned issuer rating takes into account BankCom’s well-defined growth strategy, but which brings keen competition from bigger and more established rivals, while BankCom continues to be a mid-size bank.
It also too into considertation the bank’s modest profitability, experienced management, and its status and position as part of a strong and supportive conglomerate.
Historical profitability of BankCom was modest. Excluding the net loss incurred in 2018, return on average assets (ROAA) ranged from 0.4 percent to 0.5 percent over the past five years.
In 2020, net income jumped by 20.2 percent to P784.4 million, as the substantial drop in interest expense on deposits (-51.9% to P1.1 billion) and the sizable increase in Trading and Investment Securities gains largely offset the jump in provisioning.
Loss provision increased by more than 18 times to P962.5 million, in line with expectations of a deterioration in the quality of the loan portfolio due to the impact of COVID-19.
PhilRatings said profitability is projected to improve in the medium-term, with the bank’s strategy to acquire a unibank license seen to boost earnings in the succeeding years. ROAA, nevertheless, will remain modest.
Net interest income will continue to account for the bulk of revenue streams, with average net interest income to revenues ratio within historical range.
Forecast expense to average assets ratio (ex-loss provisions) will similarly fall within historical levels, indicating the bank’s intention to keep close watch on operating expense (opex) growth.