“The rating for Bank of Commerce’s proposed P1.2 billion in unsecured subordinated notes is PRS A,” PhilRatings announced. A rating of PRS A means that: “…the issue has favorable investment attributes and is considered as an upper-medium grade obligation. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future.” The Tier-2 issue has a term of ten years, with a call option after year 5. Bank of Commerce is the first bank to seek a domestic credit rating for its proposed issue.
In assigning the rating, PhilRatings considered Bank of Commerce’s business franchise, its stable funding profile, and the availability of capitalization support from its shareholders. The rating likewise takes into account the bank’s lower profitability compared to its peers. In terms of asset quality, the bank’s non-performing asset (NPA) ratio as of end-2003 was higher compared to the commercial banking sector’s average. Bank of Commerce’s fairly diversified loan portfolio and conservative balance sheet structure, however, help temper asset quality risks. PhilRatings believes that resolution of the bank’s asset quality concerns will be manageable over the long-term considering special programs that have been launched to market the bank’s ROPOA and a regular review and process undertaken to manage problematic or restructured accounts. Bank of Commerce’s senior management team is cognizant of the bank’s present circumstances and is pursuing a well-thought out strategy to address its weaknesses and to allow it to compete and sustain growth over the long-run. Management has expressed commendable insights on the strengths and weaknesses of the bank and is clear on what directions to take to achieve its targetted growth.
Earnings went up by 17.1% in 2003 to P156.6 million although return on average assets (ROAA) was at 0.4% compared to the commercial banking sector average of 1.3%. The bank’s revenue and earning streams are expected to improve over the long-run, boosted by an improvement in interest rates, increased availment of approved lines/loans, better management of non-performing loans, among others. Tapping of existing and new clients will be heightened with Bank of Commerce’s branches’ and bank personnel’s increased focus on marketing. Bank of Commerce is the country’s sixteenth largest bank, accounting for about 9.7% of commercial banking sector deposits as of end-2003. It has 112 branches spread nationwide, with the number of branches boosted significantly by its previous acquisitions of Pan Asia Banking, Inc. and Traders Royal Bank.
The bank’s loans-to-deposit ratio as of end-2003 of 59.8% compares favorably with the peer average of 84.7%. Its funding profile is largely made up of lower-cost savings and demand deposits generated through its branch network.
The bank’s absolute capital base of P3.7 billion is modest relative to the robust growth in its loan portfolio. As of December 31, 2003, Bank of Commerce’s capital to risk assets ratio was at 11.7%, above the Bangko Sentral ng Pilipinas’ (BSP) minimum required ratio of 10%. With its intended Tier-2 issue, this ratio will improve in 2005.