DEBT-watcher Moody’s Investors Service said on Friday that the capital raising programs of the Bank of the Philippine Islands (BPI) and the Philippine National Bank (PNB) are credit positive as they will increase the banks’ loss-absorption capacity.
BPI earlier announced that its P25-billion new capital will be raised through a stock rights issue. The bank issued 370.37 million new common shares to existing shareholders at P67.50 a share.
“The additional equity capital is credit positive for BPI because it will increase the bank’s loss-absorption capacity and boost its common equity Tier 1 capital well beyond the Basel III minimum,” the debt watcher in a report stated.
Moody’s noted that the equity deal will increase BPI’s common equity Tier 1 capital ratio to 18.6 percent from 14.7 percent reported as of the end of September 2013.
“This will make BPI among the best capitalized banks in the Philippines and Asia Pacific. The higher capital level is also well above the Basel III minimum of 8.5 percent, including a capital conservation buffer for the Philippine banks,” it added.
Furthermore, the debt-watched said that the additional capital will better position the bank to pursue business expansion.
“Assuming BPI maintains 15-percent loan growth and similar levels of core profitability and earnings retention it has over the past five years, we estimate that its common equity Tier 1 ratio will be 17.8 percent at the end of this year and 16.9 percent at the end of 2015, also assuming no acquisitions,” it said.
Moody’s added that the bank’s ability to sustain its high capital levels would depend primarily on future acquisitions and how it funds those acquisitions.
BPI is the third-largest bank in the Philippines by assets. In 2013, the bank posted a 15-percent increase in 2013 net income to P18.8 billion from P16.3 billion a year ago on the back of solid performance in the bank’s diversified businesses.
Meanwhile, the PNB announced that it raised P11.6 billion in new equity capital through a rights issue.
“The additional capital is credit positive for the bank because it boosts its Tier 1 capital ratio well beyond the Basel III minimum requirements, and better positions the bank to pursue business expansion, following its merger with Allied Banking Corp. [ABC] in February 2013,” Moody’s said.
PNB will allocate P10 billion of the P11.6 billion to ABC’s savings unit, facilitating the growth of the latter’s consumer lending business, against the backdrop of strong domestic growth.
“Before the merger with ABC, PNB’s margins were under pressure, due to the low interest rate environment. Its capital raise through the rights issue will enhance PNB’s opportunities to capture growth and improve net interest margins—among other things through increased loans to the higher-yielding retail segment—while preserving its comparatively thick loss-absorbing buffer,” Moody’s said.
Philippine banks have been boosting their capital levels in preparation for the capital requirements under the Basel III framework. Last year, the Bangko Sentral ng Pilipinas has ordered big banks in the country to raise their capital adequacy ratio by 10 percent by January 2014 for a smooth transition to Basel III.
Basel III is a framework designed to strengthen the banking sector’s capacity to absorb shocks, enhance the management of risk, and to increase transparency.