MOODY’S Investors Service on Thursday afternoon reported an upgrade to its rating of United Coconut Planters Bank (UCPB), on the back of expectations of better bank solvency and internal capital generation.
The rating agency hiked the local bank’s long-term foreign currency deposit rating to Ba3 from B2 with a stable rating outlook.
A stable rating outlook means the rating is unlikely to be changed in the next 12 to 18 months.
Moody’s has also upgraded UCPB’s Baseline Credit Assessment and adjusted BCA to B2 from Caa1.
Moody’s said the upgrades were driven by the improvement in the bank’s solvency, and their expectation that the bank’s internal-capital generation will 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,” Moody’s said.
“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,” it added. While the credit watcher assigned a stable outlook to the rating, Moody’s said they could upgrade UCPB’s BCA and consequently its deposit rating, if the bank displays an ability to increase its profits, improves its core capitalization and maintains strong liquidity.
Moody’s said it could lower UCPB’s deposit rating if (1) its already weak loss-absorption capacity further deteriorates; (2) the bank’s liquidity weakens; and/or (3) the likely systemic support from the government falls.