Philippine banks, particularly those that belong to local conglomerates, and those with minority stakes in various entities are seen to be more active in divesting and monetizing value from their non-core assets ahead of the imminent implementation of Basel III requirements in 2014.
This statement came from credit-ratings agency Moody’s Investors Service after Rizal Commercial Banking Corp. (RCBC) announcement that it had concluded share purchase agreements to sell its 25-percent equity stake in RCBC Realty Corp. (RRC) and its 49-percent equity stake in RCBC Land Inc. (RLI) for a total consideration of P4.5 billion, or $103.9 million.
Moody’s said that the proactive non-core asset sales are credit positive for RCBC, because these free up capital for business growth and higher capital requirements under the new Basel III regime.
“Based on RCBC’s June 2013 financials, we expect its consolidated Tier 1 capital ratio to increase to 16.8-percent pro forma for the share sale, from 16.2 percent, well above the average 15-percent ratio among our rated Philippine banks at the end of June,” it stated.
The agency added that while the increase in capitalization is not material, it removes the possibility that the bank’s Tier 1 capital may decline because of the punitive deduction that banks must apply to their Tier 1 capital for their equity investments in non-financial entities beginning January 1, 2014.
“If the bank does not dispose of its stakes in RRC and RLI by 1 January 2014, its Tier 1 capital ratio will decline to 15.2 percent under the new capital regime, based on June 2013 financials, as shown in the exhibit,” it explained.
Moody’s noted that under the agreements, Pan Malayan Management and Investment Corp. will purchase a 7.66-percent stake in RRC and the entire 49-percent stake in RLI; House of Investments Inc. will purchase a 10-percent stake in RRC and RLI will purchase the remaining 7.34-percent stake in RRC.
“These divestments continue the bank’s strategy of monetizing its non-core assets and deploying capital to fund its core lending business,” it said.
In February, the bank sold P4.8 billion of nonperforming assets to Philippine Asset Growth One Inc. (unrated), a special-purpose company.
Between March and April, the bank raised $200 million from share placements, which increased its capital buffer. RCBC, which has a Moody’s rating of“Ba2 stable, D-/ba3 stable, is the fifth-largest bank in the Philippines in terms of assets, with market share of 5.2 percent as measured by loans and 4.3 percent by deposits.