Bank of Commerce Assigned a PRS A Issuer Rating

“The rating for Bank of Commerce’s (Bancommerce) over-all credit standing is PRS A,” PhilRatings announced. A rating of PRS A means that the bank has an: “…above average capacity to meet its financial commitments relative to that of other corporates and/or banks.” Bancommerce is the first Philippine bank to seek a domestic issuer or bank credit rating from PhilRatings. In October 2004, Bancommerce was likewise the first to apply for a domestic credit rating for a proposed P1.2 billion Tier-2 issue. The issue also has a rating of PRS A.

In assigning the rating, PhilRatings considered Bancommerce’s business franchise and funding profile, counterbalanced by the bank’s need to improve its asset quality. Bancommerce is the country’s eighteenth largest bank, with assets of P55.4 billion as of end-2004. Its share of the commercial banking sector’s loans and deposits in 2004 stood at 6.2% and 9.5%, respectively. Bancommerce continues to develop and improve its product offerings to continue to enhance its already stable funding profile.

Bancommerce’s ratio of non-performing assets to total loans, however, stood at 37.5% as of end-2004 compared to the commercial bank sector’s ratio of 20.8%. Of the bank’s total NPAs, about half are made up of acquired properties with a book value of P3.6 billion. Appraisal companies have established the fair market value of these properties at P5.3 billion, representing a P1.7 billion increment over the carrying value. Still, Bancommerce continues to put appropriate programs in place to address this. A recent positive development in this area is its pending sale of certain non-performing loans (NPLs), with an aggregate book value of P1.6 billion, to Philippine Investment One (SPV-AMC) Inc., a Lehman Brothers-owned entity. This transaction will be booked once the Bangko Sentral ng Pilipinas issues the Certificates of Eligibility. With the issuance of the Certificates of Eligibility, Bancommerce estimates that its NPL to loans ratio net of provisions for loan losses will drop to about 8.1%.

Earnings in 2004 was at P83.3 million, corresponding to a return on average assets (ROAA) of 0.2%. The retained earnings figure as of February 2005 of P83.9 million shows a reversal of a previous negative surplus in 2004 and is a positive factor in its credit profile. Bancommerce’s capital to risk assets ratio (CAR) stood at 12.4% as of end-February 2005, compared to the minimum requirement of 10.0%. With the sale of the NPLs and the issuance of Tier 2 notes, Bancommerce’s CAR based on end February numbers is estimated at 16.8%.

In recent developments, Bancommerce has been named as a co-respondent (in its capacity as trustee) with College Assurance Plan (CAP) in a class suit filed by CAP planholders. At this point, no liability is seen to attach to Bancommerce as trustee bank as Article V of the Trust Agreement states: “Except in those instances where there exists fraud, bad faith, or willful or gross negligence, the TRUSTEE shall not be liable for…Any insufficiency of the FUND to meet the educational payments and other liabilities to the TRUSTOR.” In this case which has been lodged, fraud or gross negligence, among others, will have to be proven and the Trust Services Group (TSG) maintains that it “performed its role as Trustee in accordance with the applicable regulations on the pre-need trust fund” and that “there was no fraudulent transaction affecting the Trust Fund.” How the case develops, however, shall be monitored closely by PhilRatings, particularly to the extent that it affects the public’s perception of the bank.

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