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PHLIPPINE National Bank (PNB) should strengthen its
remittance business to avert a rating downgrade, according to
Moody’s Investors Service said.
In a statement, Moody’s
upgraded PNB’s financial strength rating due to improvements in
the lender’s capital and profitability.
“This lessened the likelihood
that it will require future outside assistance,” the US-based
credit rating company said.
However, a further reduction of
the bank’s market share, especially in remittances, would affect
its ratings, Moody’s said.
“The rating agency would view
any or all of the following factors as possible reasons for a
downgrade: erosion of market share, especially in remittances, to
larger or more nimble competitors; and/or increased exposure to
related-party risks,” the rating firm said.
Omar Byron Mier, PNB president
earlier said the bank could reclaim its top position in the
remittance business after two years when it has completed its
integration process with Allied Banking Corp.
He said PNB will boost its
consumer and corporate lending business with the merger.
“The merger will further
augment PNB’s financial fundamentals and provide it with a wider
distribution network, though these improvements are tempered by
merger-related risks,” Moody’s however said.
The boards of each bank on April
30, 2008, endorsed the merger, for presentation next month to their
respective shareholders. The merged entity increases its position as
the country’s fourth largest bank in terms of assets reaching P388
billion. Its capital adequacy ratio would stand at 18 percent, or
well above the regulatory minimum of 10 percent.
Starting 2006, Bank of the
Philippine Islands (BPI) dislodged PNB from the top spot in the
remittance business.
Remittances of overseas Filipino
workers are expected to reach $15.7 billion this year, according to
the Bangko Sentral ng Pilipinas.
Moody’s upgraded PNB’s bank
financial strength rating (BFSR) to E+ reflecting its past reliance
on external support, including its continued reliance on regulatory
forbearance on the recognition of previous period losses. The
bank’s significant holdings of foreclosed assets serve as a
substantial weight on its economic solvency, the rating company
said.
At the same time, the bank’s
local-currency deposit and subordinated debt ratings have been
raised to Ba1/Not-Prime and Ba2, respectively, reflecting the
potential impact of its pending merger with similarly-rated Allied
Bank.
Moody’s has also affirmed
PNB’s foreign currency deposit rating of B1/Not-Prime.
The outlook on PNB’s financial
strength and local currency deposit and debt rating is stable, while
its long-term foreign currency deposit rating continues to have a
positive outlook.
Moody’s said factors that could
result in upward pressure on PNB’s financial strength rating
include a substantial reduction in non-performing assets without
recourse to regulatory support and allowances, accelerated
recognition of deferred losses on the sale of non-performing assets,
and sustained improvement in the use of its valuable franchise
to increase risk-adjusted returns.
PNB’s bad assets stood at P11.4
billion as of last year, largely consisting of real and other
properties acquired of P9.6 billion and P1.8 billion of
non-performing loans.
--Maricel E. Burgonio
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