P1B fine credit negative for RCBC – Moody’s

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The P1-billion fine imposed by the central bank on Rizal Commercial Banking Corp. (RCBC) over its involvement in the $81-million Bangladesh Bank heist is credit negative for the lender, according to debt watcher Moody’s Investors Service.

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The policy-making Monetary Board (MB) approved last Friday a “supervisory enforcement action” against RCBC after a special examination.

RCBC said it would comply with the order and pay the P1-billion fine—the largest fine ever imposed by the BSP on a financial institution—in two equal tranches over one year.

“The imposition of fine is credit negative because it will directly reduce the bank’s profitability,” Moody’s said in a report released on Thursday.

The fine, Moody’s said, equaled to about 19 percent of the bank’s annualized net profit as of the first half of 2016.

Additionally, it said, the fine points to weaknesses in RCBC’s internal controls, particularly around anti-money laundering and other risk management systems.

“We believe that this incident has harmed the bank’s reputation, as reflected by the negative growth in deposits in the first quarter of 2016, when the incident was first reported,” Moody’s noted.

“Although we do not know yet if the deposit outflow is entirely related to the investigation, the bank has sufficient liquidity buffers to withstand any further outflows,” the debt watched said.

It noted that liquid assets were about 29 percent of the bank’s tangible asset at the end of 2015.

Moody also pointed out that easing the negative effect on the bank is the fact that the bank will pay the penalty in two equal payments over the next year.

As a direct consequence of the investigation, Moody’s expects RCBC to increase spending and strengthen its risk management and information-technology systems, raising operating costs over the next 12 to 18 months.

In February 2016, $81 million was electronically stolen from the Bangladesh Bank account at the Federal Reserve Bank of New York and deposited into an RCBC branch in Makati City.

The funds were subsequently withdrawn from the bank, with some of the stolen money transferred to casinos and junket operators.

The fallout from the cyber heist included the May 2016 resignation of then-RCBC Chief Executive Officer Lorenzo Tan. An internal investigation has since cleared Tan of any wrongdoing in connection with the heist.

Another casualty was Atiur Rahman, governor of the Bangladesh central bank, who resigned in March 2016.

Junket operator Kim Wong, one of the individuals supposedly involved in laundering the stolen funds, has returned $4.63 million and P488 million in cash to the Anti-Money Laundering Council (AMLC).

This represents the entire amount Wong claimed he and his company, Eastern Hawaii Leisure Ltd., received out of the $81 million.

Meanwhile, Bangladeshi officials said it discussed with the Philippine Amusement and Gaming Corp. (Pagcor) the recovery of $2.38 million frozen at the Solaire Resort and Casino.

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