Metrobank to issue tier 2 bonds

Metropolitan Bank and Trust Co, the Philippines’ largest bank, is considering a further bond float to boost its tier two capital, Bangko Sentral ng Pilipinas (BSP) yesterday.

"Metrobank said it is looking at tier two (debt issuance) again to support its expansion and improve its branch network," Buenaventura told reporters, adding he had yet to receive an application setting out the size of the issue or other details.

Tier two capital comprises quasi-debt instruments that are typically denominated in dollars. It allows banks to effectively boost their equity without diluting holdings of existing shareholders.

A report last Tuesday by debt markets news service, BasisPoint, said Metrobank has hired international investment firm, UBS Warburg, to lead a $100 to $150 million 10-year subordinated bond deal.

It added that investor roadshows for the bonds, which would be non-callable for five years, would begin in Manila on Nov. 6 before moving to Singapore, Hong Kong and London.

Company officials were not immediately available for comment.

Metrobank last raised tier two capital in January when it sold $100 million of five-year convertible notes through a private placement to Singapore-based Dunmore Asset Ltd.

The BSP approved the issuance of tier two capital last year as an alternative equity raising scheme for banks. It allows them to offset capital declines caused by rising bad loans.

The monetary authority has been pushing banks to raise their capital adequacy ratios.

Previously, foreign investors had to convert dollar funds into pesos to invest in local banks, but the tier two arrangement allows them to remain invested in dollar assets.

Other banks have shown an interest in raising tier two capital.

In May, medium-sized commercial bank Banco de Oro said it would tap a $20 million five-year loan from the International Finance Corp (IFC) of the World Bank that the IFC could convert into equity in the third year of the loan.

In June, the country’s third largest bank, Equitable PCI Bank, said it was raising up to five billion pesos ($94 million) in tier two capital from a notes offering.

Philippine banks have been wrestling with stubbornly high non-performing loans that averaged 17.58 percent of total loan portfolios at the end of August.

Metrobank’s NPL ratio as of Sept. 20 was 12.55 percent of total loans, while Equitable PCI Bank’s was 18.43 percent.