MANILA – A merger between the Ayala group’s Bank of the Philippine Islands on the one hand and Philippine National Bank and Allied Banking Corp on the other would improve the credit score of the latter two Lucio Tan-owned lenders, according to Moody’s Investors Service.
“BPI’s acquisition of PNB is credit positive for PNB and [Allied Bank] because BPI is fundamentally stronger than the other two banks, and as such will be able to improve their credit profiles,” Moody’s said in a statement.
“Because BPI is the strongest among the three in terms of asset quality and risk-adjusted profitability, we expect the merger to have a positive effect on PNB’s and [Allied Bank’s] respective financial metrics,” the credit rating firm said.
Last week, BPI and PNB announced that they were in discussions for the former's acquisition of the latter. The talks come as PNB has yet to complete its own merger with Allied Bank.
Moody’s maintains a “Ba1” rating on BPI, a “Ba2” rating on PNB, and a “Ba3” rating on Allied Bank. Outlooks for the three lenders are “stable,” which means no change in their ratings is expected in the near term.
“PNB and [Allied Bank] rank lowly among our rated Philippine banks in key credit performance measures despite improvements over the past three years. Both maintain substantial legacy bad loans that continue to weigh on their asset quality,” Moody’s said.
“In addition, both exhibit high credit risk concentration to large borrowers relative to their core capital base, which exposes them to significant credit losses,” the rating firm said.
“Moreover, the boards of directors at both banks are dominated by a controlling shareholder and lack adequate representation by independent directors, both of which threaten their corporate governance,” Moody’s said, referring to Tan.
The rating firm said the absence of financial details on the transaction prevents it from providing a definitive assessment on the credit implication on BPI.
“However, our preliminary assessment is that the transaction would not entail a significant burden on BPI’s credit profile. Assuming that BPI pays two times PNB’s and [Allied Bank’s] book value for Tan’s stakes in both banks, and funds the acquisition through a share swap based on the last traded share price prior to the announcement of the acquisition, we estimate BPI’s Tier 1 capital ratio would increase to 16 percent from 14.5 percent, based on September 2012 financials,” Moody’s said.
“In another scenario in which BPI pays for the acquisition using a 50-50 mix of cash and newly issued equities, we estimate BPI’s Tier 1 capital ratio would decrease to 11 percent,” the rating firm said.
At end-June, BPI was the third-largest bank by assets in the Philippines, while PNB was seventh and Allied Bank, 13th. A merger would catapult the surviving entity to the top spot, with an estimated market share of 19 percent of system assets.
source: interaksyon.com
