Moody’s cuts RCBC outlook to ‘negative’

MOODY’S RATINGS has affirmed its ratings for Rizal Commercial Banking Corp. (RCBC) but cut its outlook to “negative” from “stable” due to heightened asset quality risks stemming from its large exposure to the retail segment.

The debt watcher on Wednesday affirmed the bank’s Baa3/P-3 long-term (LT) and short-term (ST) foreign-currency (FC) deposit ratings, Baa3 FC senior unsecured debt rating, Baa3/P-3 LT and ST local-currency (LC) and FC counterparty risk ratings, Baa3(cr)/P-3(cr) LT and ST counterparty risk assessments, as well as the ba1 baseline credit assessment (BCA) and adjusted BCA.

It also affirmed RCBC’s (P)Baa3 FC senior unsecured medium-term note program rating and (P)P-3 other ST rating.

It kept the bank’s deposit ratings and BCA on the back of its modest solvency and average funding and liquidity, adding that there is a moderate likelihood that the government would support the bank if needed as it has a modest share in the banking system’s total deposits.

“We revised the outlook on RCBC’s ratings where applicable to negative from stable, reflecting our expected deterioration in the bank’s solvency metrics,” Moody’s said. A “negative” outlook means a ratings downgrade is possible within the next 12-18 months.

“The revision of the outlook to negative reflects increasing asset quality pressures which will weigh on profitability through higher credit costs and erode capital. Asset quality challenges are stemming from unsecured retail loans and exposures to small- and medium-sized enterprises (SME), with higher risks driven by weakening economic environment amid high inflation. The latter will further constrain borrowers’ debt repayment capacity, exacerbating risks in RCBC’s retail portfolio…”

It said the bank’s retail loan portfolio has expanded rapidly over the last two years, growing by 40% in 2024 and 29.4% in 2025.

Meanwhile, as of end-March, RCBC’s nonperforming loan (NPL) ratio rose to 5% from 4.3% a year ago due to weakening SME and credit card portfolios, while credit costs increased to 2.4% from 1.6% over the same period. Loan loss reserves relative to NPLs stood at a “modest” 57%.

“We expect asset quality to deteriorate further over the next 12 to 18 months,” Moody’s said.

Higher credit costs will hit the bank’s profitability in the same period, it added, as it noted that RCBC’s annualized return on tangible assets (RoA), despite slightly increasing to 0.8% at end-March from 0.7% in the same period last year, remains “modest” compared to other banks.

Meanwhile, RCBC’s capital position is expected to continue being a “relative credit strength,” the debt watcher said.

“As of December 2025, the bank’s tangible common equity (TCE) to risk-weighted assets (RWA) ratio was stable year on year at 15.4%, although our expected deterioration in asset quality and profitability will put pressure on the capital ratio,” it said. “Nonetheless, we expect loan growth to moderate, which will partly offset pressure on capital consumption.”

“RCBC’s funding is modest. The bank’s deposit concentration is higher than that of most rated domestic peers, and its access to funding remains comparatively weaker, as reflected in its higher cost of funds, although this has improved from a year earlier,” Moody’s added.

The bank’s liquidity position is a key strength, as reflected in its core liquidity ratio of 28.6% as of December 2025 and “stable” liquidity coverage ratio of around 150%.

Moody’s said it could downgrade RCBC’s deposit ratings and BCA if asset quality deteriorates further and if higher credit costs cause its RoA and TCE/RWA ratio to fall below 0.3% and 13%, respectively.

“A significant weakening in the bank’s funding and liquidity would also be negative for its BCA and ratings,” it said.

“The bank’s ratings could be downgraded if the Government of Philippines’ sovereign rating is downgraded, as a result of the lower capacity of the sovereign to provide support for RCBC,” it added. “RCBC’s deposit ratings would also be downgraded if the sovereign rating is downgraded.”

Meanwhile, the credit rater could return its ratings outlook for the bank to “stable” if its solvency, asset quality, and profitability metrics improve.

“An upgrade of RCBC’s ratings is unlikely as they are currently on negative outlook.” — Aaron Michael C. Sy