Moody’s Ratings has revised the ratings outlook of Lucio Tan Group’s Philippine National Bank (PNB) to “positive” from “stable” while also affirming its “Baa3/P-3” long-term and short-term foreign currency and local currency deposit ratings.

In a statement, Moody’s Ratings formerly Moody’s Investors Service said it also retained PNB’s “Baa2/P-2” long-term and short-term foreign currency and local currency Counterparty Risk Ratings as well as its “Baa2(cr)/P-2(cr)” Counterparty Risk Assessments.

Moody's Ratings said it has also affirmed the bank's Baseline Credit Assessment (BCA) and Adjusted BCA at “ba1” and its foreign currency senior unsecured medium-term note program rating at “(P)Baa3” and its foreign currency senior unsecured rating at “Baa3”.

It has likewise changed the outlooks on PNB’s long-term deposit and senior unsecured ratings to “positive” from “stable.”

“The change in outlook to positive reflects PNB's stabilizing asset quality and improved profitability after a significant net interest margin (NIM) expansion and lower provisioning costs in 2023,” according to Moody’s Ratings.

It said PNB's reported NIM has expanded to 4.2 percent from 3.6 percent in 2023 and this was “driven by its effective management of cost of funds and higher asset yields, although the bank's yields remain the lowest among its domestic rated peers'.”

The bank’s credit costs also improved to 0.9 percent from 1.2 percent in 2023 due to its “stabilizing asset quality” while its “increased lending margins from PNB's expansion into higher yielding small and medium enterprise (SME) and retail segments will balance the higher credit costs in these portfolios.”

With this, Moody's Ratings said they predict that PNB's profitability will “remain largely stable” with return on assets of 1.5 percent over the next 12-18 months.

It also noted PNB's non-performing loan ratio of 7.3 percent as of end-2023, which it expects “to decline but remain above pre-pandemic levels over the next 12-18 months, as PNB continues to clean up its large pandemic-related NPL exposures, while managing risks arising from unseasoned loans in its expansion into the SME and retail segments.”

Meanwhile, Moody’s Ratings said funding continued to be PNB’s credit strength.

The bank's Common Equity Tier 1 (CET1) ratio increased to 16.9 percent as of end-2023 from 14.6 percent the year before, it noted, and this was due to its “substantial improvement in profits and only modest balance sheet growth in the year (while) its capital will decline to a still-strong level as its loan growth accelerates over the next 12-18 months.”