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Moody’s upgrades UCPB deposit rating

BusinessWorld logo BusinessWorld 1/17/2019
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MOODY’S Investor Service has raised United Coconut Planters Bank’s (UCPB) foreign currency deposit rating by two notches and kept its outlook stable.

“Moody’s Investors Service has upgraded the long-term foreign currency deposit rating of United Coconut Planters Bank (UCPB) to Ba3 from B2,” Moody’s said in a statement on Thursday.

The rating is non-investment grade based on Moody’s rating scale, but is just two steps behind the minimum investment-grade rating of Baa3.

Moody’s also raised UCPB’s baseline credit assessment to b2 from caa1. It also upgraded UCPB’s long-term deposit note rating to Ba3 from B2; long-term counterparty risk ratings to Ba2 from B1; and long-term counterparty risk assessment (CRA) to Ba2 from B1.

Moody’s also affirmed the bank’s short-term deposit rating and counterparty risk ratings at NP (not-prime), short-term deposit note/CD program rating at NP, and short-term CRA at NP.

The debt watcher said that the upgrade was due to an improvement in UCPB’s solvency, and expects its capitalization to strengthen.

“Over the past 10 years, the annual amortization of the bank’s P29 billion deferred credit charges from legacy problem assets substantially eroded UCPB’s retained earnings and as a result internal capital generation was weak. Internal capital generation will increase substantially beginning in 2019 because 2018 marks the last year of amortization of those credit charges and as a result retained earnings will rise,” Moody’s said.

It also noted the local lender’s return on assets has been robust during the past three years due to loan growth and increased interest income from its investments on securities.

This is despite UCPB’s deterioration of asset quality due to the higher share of non-performing loans in the bank’s portfolio, Moody’s said.

A further rating upgrade may be warranted if UCPB “displays an ability to increase its profits, improves its core capitalization, and maintains strong liquidity.”

On the flipside, Moody’s could downgrade the rating of UCPB if “its already weak loss-absorption capacity further deteriorates; the bank’s liquidity weakens; and/or the likely systemic support from the government falls.” — Elijah Joseph C. Tubayan

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