Metropolitan Bank & Trust Co.

...RCBC MBT BPI BDO takes a hit 

Stocks fall as banks take hit from Hanjin default

SHARES fell on the last trading day of the week as investors turned cautious on the banking sector after news of Korean firm Hanjin’s $412-million loan default from five of the country’s largest banks.

The 30-company Philippine Stock Exchange index (PSEi) fell 1.01% or 81.14 points to close at 7,904.09 on Friday. The broader all shares-index also slumped 0.72% or 34.76 points to end the week at 4,730.15.

“The index dropped 81.14 points today to close at 7,904.09, but even fell by as much as 129 points intraday, dragged down by the Hanjin debt issue which plagued the banking sector,” Papa Securities Corp. Sales Associate Gabriel Jose F. Perez said in an email on Friday.

Upon Hanjin Heavy Industries and Construction Philippines’s declaration of bankruptcy earlier this week, Rizal Commercial Banking Corp. (RCBC), Land Bank of the Philippines (LANDBANK), Metropolitan Bank & Trust Co. (Metrobank), Bank of the Philippine Islands (BPI), and BDO Unibank, Inc. were reported to have a $412-million dollar loan exposure to the firm.

RCBC, which was found to have the largest loan exposure at $140 million, saw its shares drop by 9.12% to P26.40 apiece.

Metrobank was the biggest loser in the list of 20 most actively traded shares for the day, losing 4.82% to P77.95 each. BPI followed with a drop of 4.76% to P90 apiece. Mr. Perez noted that the stocks posted the top net foreign outflows for the day at P406 million and P100 million, respectively. Meanwhile, shares in BDO were unchanged at P131.30 each.

Regina Capital Development Corp. Managing Director Luis A. Limlingan also attributed the market’s decline to the Hanjin issue, noting that this preventing the PSEi from rising past the 8,000 level.

“Philippine investors took money out as the index neared the 8,000 level. Some obvious headwinds preventing us from cracking well past 8,000 — financials getting hit as five of the largest PH banks are firefighting the biggest corporate default in the country’s history,” Mr. Limlingan said in a mobile message.

The industrials counter was the lone advancer on Friday, gaining 0.1% or 11.73 points to 11,486.68. The rest declined, led by financials which plunged 2.53% or 46.1 points to 1,772.32. Property dropped 1.15% or 46.12 points to 3,944.12; holding firms shed 0.59% or 47.04 points to 7,883.57; mining and oil slipped 0.53% or 47.14 points to 8,742.18; and services went down 0.18% or 2.92 points to 1,542.15.

Foreign investors maintained their net buying position, although at a much lower figure of P228.9 million compared to Thursday’s P1.5 billion.

Some 5.49 billion issues switched hands, resulting in a turnover of P8.5 billion, lower than the previous session’s P10.11 billion.



Banks’ credit ratings at risk from Hanjin

HUGE LOAN EXPOSURES to troubled Hanjin Heavy Industries and Construction Philippines (HHIC-Phil) could pull down credit ratings for the five Philippine banks concerned as its problems would mean narrower profits for absorbing possible defaults, Moody’s Investors Service said in a Jan. 14 note.

The debt watcher said credit risks from the South Korean shipbuilder’s bankruptcy will drive credit costs higher, with reports pegging the amount at $412 million. Settlement of the unpaid debts was left hanging after Hanjin filed for corporate rehabilitation last week.

Moody’s analysts said this does not bode well for the ratings of Rizal Commercial Banking Corp. (RCBC), state-owned Land Bank of the Philippines (LANDBANK), Metropolitan Bank & Trust Co. (Metrobank), Bank of the Philippine Islands (BPI) and BDO Unibank, Inc. in their view.

“The exposures are credit negative for the five Philippine banks because they will need to incur additional credit charges related to HHIC-Phil, which will reduce their profit,” Moody’s analysts Simon Chen and Shirley Zeng said in a credit outlook.

Moody’s rates these lenders at “Baa2,” which is one notch above minimum investment grade. This matches the rating given to the Philippine government and allows them to raise funding from foreign investors at cheaper cost.

HHIC-Phil has maintained a shipyard at the Subic Bay Freeport Zone in Central Luzon since 2006 and had hired over 22,000 workers. Issues on worker safety have also hounded the shipbuilding firm since it started operations here.

HHIC-Phil owes $140 million to RCBC, $80 million to LANDBANK, $72 million to Metrobank and $60 million each to BDO and BPI.

“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 (bp), from six to 26 basis points based on their September 2018 financials,” the report read.

“The biggest negative effect on profitability will be at RCBC.”

Moody’s analysts said they expect the bank’s bad loans ratio to nearly double to 4.3% of the total portfolio from 2.2% in 2017 due to its huge Hanjin exposure.

The increase in nonperforming loan ratios of the other four banks “will be smaller” at 15-50 bp, it added.

At the same time, the debt watcher said the banks involved can still weather this challenge, as they have more than enough capital buffers to keep a solid footing.

“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 said, adding that “[f]or 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.”

BSP Officer-in-Charge Deputy Governor Diwa C. Guinigundo said on Friday last week that HHIC-Phil’s outstanding debt is “negligible” compared to total industry loans. Latest central bank data showed that this represents 0.24% of total loans and 2.49% of foreign currency loans.



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