BPI’s market position to get a boost from merger

THE PLANNED MERGER between Bank of the Philippine Islands (BPI) and Robinsons Bank Corp. (RBC) will strengthen the former’s market position as one of the largest lenders in the country, Fitch Ratings said.

“We believe the merger should cement BPI’s market position as one of the largest privately owned banks in the Philippines, with its market share slated to increase by about 0.9 percentage points,” Fitch Directors Tamma Febrian and Willie Tanoto said in a commentary dated Oct. 3.

“Beyond acquiring RBC’s existing customer base and more than 150 branches, BPI should also benefit from the strengthened ties with the Gokongwei Group, RBC’s major shareholder and one of the largest conglomerates in the Philippines, through improved access to new clients from the group’s vast business operations across the country,” Fitch added.

It said the merger is unlikely to affect BPI’s support-driven credit ratings.

“The immediate financial implications from the merger are manageable for BPI, considering the acquired entity’s reasonable financial profile and relatively modest scale,” it said.

“Nevertheless, the enlarged franchise will reinforce BPI’s systemic importance, which is a key driver of its support-driven Issuer Default Ratings (IDRs). The IDRs are currently on Negative Outlook, in line with the Outlook on the Philippine sovereign, and any changes to the sovereign rating or Outlook is likely to lead to corresponding action on the bank’s IDRs, provided that our assessment of the state’s propensity to support BPI remains unchanged.”

Under the deal announced last week, which is still subject to shareholder and regulatory approval, the Ayala-led BPI will be the surviving entity.

The companies hope to complete the merger before end-2023. Upon the effectivity of the merger, RBC’s shareholders will hold approximately 6% of the resulting outstanding capital stock of BPI. However, the ratio of exchange of shares has yet to be announced. 

Data from the central bank showed BPI is the third-largest private bank in the country in terms of assets with P2.45 trillion as of end-June, while RBC had total assets of P172.35 billion.

With the merger, the surviving entity will become the second-largest bank in the country in terms of assets with P2.62 trillion.

The merger will also result in BPI taking over RBC’s 20% stake in digital lender GoTyme Bank, a joint venture between RBC, the Gokongwei Group and Singapore-based GoTyme.

“We believe that the additional platform would help the bank broaden its retail offerings and tap new, albeit potentially higher-risk, underserved customers in the Philippines. The incremental credit risks from expanding into underbanked sectors will hinge on BPI’s strategy and risk posture, which we expect to remain relatively disciplined,” Fitch said.

“Moreover, we believe higher interest rates and softening business and consumer sentiments are likely to temper BPI’s loan growth momentum in the near term,” it said.

The credit rater said the merger is also unlikely to affect BPI’s credit profile, even as RBC’s asset quality is weaker than that of the larger bank’s. However, acquired non-performing loans (NPLs) will increase BPI’s NPL ratio by about 0.2 percentage point (ppt) as RBC’s balance sheet is just 7% of BPI.

Fitch said any incremental credit charges can be absorbed by BPI’s healthy loan-loss buffers.

“RBC’s capitalization is also healthy, reflected in its common equity Tier 1 ratio of 14.2% at end-June 2022 compared with BPI’s 15.9%, which should limit the decline in the merged entity’s capital ratio to less than 0.2 ppt. RBC is also unlikely to act as a major drag on BPI’s risk-adjusted profitability metrics as the bank is reasonably profitable in line with the industry average, even though it is less so than BPI,” Fitch added.

Meanwhile, China Bank Securities Corp. Research Director Rastine Mackie D. Mercado said in an e-mail that BPI will benefit from acquiring RBC’s loan book and customer base, as well as from potential synergies with the Gokongwei Group.

Asked on why the Gokongwei Group is exiting the banking sector, Mr. Mercado said: “There may have been an opportunity for the business and its shareholders to better realize the value in RBank through a merger with BPI.”

“Moreover, this may also be in line with strategic streamlining within the broader Gokongwei group, allowing them to better focus on their core businesses,” he added.

Meanwhile, Mercantile Securities Corp. Head Trader Jeff Radley C. See said in a Viber message that this was likely a strategic move by the Gokongwei Group amid the current operating environment for financial firms.

“With the current business sentiment, it is better to do a merger in order to survive. Robinsons Bank is still a small bank. Most probably, there won’t be any competition concerns,” Mr. See said.

BPI’s net income rose by 82.9% to P12.5 billion in the second quarter from the P6.8 billion recorded in the same period last year.

This brought the lender’s net earnings for the first half of the year to P20.4 billion, up by 73% from the P11.75 billion seen in the same period in 2021.

BPI’s shares closed at P91.90 apiece on Tuesday, down by 10 centavos or 0.11%. — Keisha B. Ta-asan