PhilRatings grades 1st Valley with PRS A + (rb)

1st Valley Bank, a rural bank operating in the Northwestern Mindanao region, is rated PRS A plus (rb), said PhilRatings, a Philippine rating services corporation.

"A rating of PRS A (rb) is defined as "a rural bank somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated rural banks. Still, the rural bank has an Above Average capacity to meet its financial commitments relative to that of other rural banks," PhilRating said in a statement.

A plus or a minus sign, added to a rating, indicates the relative position of a rural bank in a particular rating category.

The 1st Valley Bank rating is the first credit rating completed by PhilRatings under the PDIC Pilot Credit RatingProject (pilot project). The project seeks to promote credit rating in the banking industry, specifically among small banks, in line with the Philippine Deposit Insurance Corp.’s (PDIC) thrust to promote market discipline and depositor protection.

In assigning the credit rating to 1st Valley, PhilRatings considered the following strengths: the rural bank’s established track record in rural banking, its above average profit performance and asset quality relative to the rural banking industry; its clear management vision and coherent strategy; as well as the bank’s acceptable capitalization.

Offsetting these strengths are: the bank’s need to boost the level of its deposit base to lower the cost of funds and improve its mix of funding sources, as well as keener competition foreseen from both rural banks in the region, as well as bigger banks which may possibly operate in 1st Valley’s markets.

The bank has been in existence since 1956 and is a well-known rural bank in its areas of operation. It established a niche in the market that it serves and is the largest rural bank, in terms of assets in the Northwestern Mindanao region. 1st Valley is also the third largest rural bank in Mindanao in terms of resources, loans and capital.

In 2005, 1st Valley Bank had a total income of P215.7 million, with net income of P25 million. Total income grew by 63 percent year-on-year, while net income improved 32 percent. The bank is strong in the salary loans market, and asset quality measures are better than that for the rural banking industry.

Going forward, the bank will further expand its distribution network and client base. An identified priority is increased deposit generation to manage costs better and to reduce the bank’s reliance on rediscounting lines.

Capital to asset ratio of 14 percent is at par with peers, and is above the required regulatory minimum. Absolute size of capital was at P148 million as of end December 2005.

PhilRatings recognized the leadership of lawyer Nicholas Lim, president and chairman of the board, who took over management of the bank in 1996. He is credited with expanding the bank’s total loan portfolio and branch network. Lim and his management team have a strong grasp and knowledge of the local market.

In the short-to medium-term though, keener competition is expected from Mindanao-based competitors, as well as from bigger Manila-based banks which have started to operate in or near 1st Valley Bank’s markets. Sustainability of the bank’s present positive results will then have to be closely monitored going forward.

The PDIC pilot project will run for the whole of 2006. Going for interested rural and thrift banks is the pledge of PDIC to subsidize a portion of the credit rating fee. – Ted Torres