“The issue rating for Asiatrust Development Bank’s (Asiatrust) proposed P550 million Tier-2 issue is PRS A minus,” PhilRatings announced. A rating of PRS A means that the issue has “…favorable investment attributes and are considered as upper-medium grade obligations. 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 Unsecured Subordinated Debt (USD) or Tier-2 issue will have a maximum term of ten years, with a call provision after 5 years.
Effective this month, PhilRatings is applying the practice of adding to a rating a plus (+) or a minus (-) sign to modify the rating to indicate the relative position of an issue in a particular rating category. Heretofore, this modification, was only applied to issuer ratings.
In assigning the rating, PhilRatings considered the bank’s sound funding base, its acceptable capitalization level, its clear and coherent strategy in serving the SME market, as well as gains realized in terms of improving its asset quality. PhilRatings likewise took into account that core earnings of the bank have been modest historically and that its market may become increasingly more competitive going forward. Still, the bank has put in place specific steps to ensure its continued growth. It has more than doubled its marketing organization and has adopted customized strategies for each target SME market (e.g. offering of full-cycle real estate financing, specialized loans to hospitals with HMO collection services, community banking).
Asiatrust is a private development bank established in 1960. With total resources of P13.2 billion (as of June 2005) and capital of P1.7 billion, Asiatrust is one of the larger institutions in the thrift banking sector. It accounts for 4.2% of the sector’s aggregate resources, 3.6% of total loans, 4.2% of deposits, and 4.6% of capital. At present, the bank has 28 branches, with only five branches located outside the National Capital Region, which are in Bulacan, Rizal, Laguna, Cavite, and Isabela. These areas have been identified by the bank as locations with a high concentration of SMEs.
Asiatrust’s asset quality has improved considerably. Its non-performing asset (NPA) to gross loans ratio was at 22.6% as of June 2005, at par with the thrift bank sector average as of March 2005 and an improvement from 2003’s 37.5%. Asiatrust managed a wholesale disposal of its bad loans in 2004 and 2005. Although asset quality is at par with the sector, the bank’s loss provisioning provides a 41.6% coverage of NPAs, higher than the sector average of 35% as of March 2005. Also, the bank has a high NPL coverage ratio of 92%.
Earnings for fiscal year ending June 2005 were at P75.1 million, from 2004’s P72 million. In its 5-year strategic plans, Asiatrust aims to grow its loan portfolio aggressively by about 15 to 20% per year in the short to medium-term. The bank will then need to balance its loan growth while managing the credit quality of its accounts. The bank also needs to further gain significant headway in reducing the amount of repossessed assets on its balance sheet. In its plans, the bank projects to aggressively dispose of its repossessed assets by about 20 to 30% of the total amount per year via public auctions and direct sales through market saturation. The bank has doubled its number of marketing and sales officers in its ROPOA group to achieve these targets.
Return on assets (ROA) before loss provisions and taxes, averaged 0.7% in the last five years, higher than the thrift banking sector’s 0% ROA in 2003-2004. The bank’s Return on Equity (ROE) stood at 4.4%, likewise higher than the industry’s 0.10% for the same period. The bank’s capital to risk assets ratio (CAR) as of June 2005 stood at 13.75%, exceeding the minimum 10% ratio required by present banking regulations. Asiatrust intends to issue up to P550 million in unsecured subordinated notes in the fourth quarter of 2005 and this is estimated to improve its CAR to 15% over the medium-term.
Asiatrust has shown strength in its deposit-taking activities, with deposits accounting for 87% of total funding in the last three years and with annual growth of 17% in the last five years. About 65% of total deposits amounting to P10.15 billion as of June 2005, consisted of low-cost savings deposits.