Moody’s affirms stable outlook for PNB-Allied

MANILA, Philippines - Global rating agency Moody’s has affirmed the stable outlook on the credit standing of the merged Philippine National Bank-Allied Bank.

In a statement, Moody’s said it expects the merger of the two Lucio Tan-controlled banks to bring improvement in the surviving entity’s financial stance in the near term.

“The positive outlook on the bank’s stand-alone credit standing reflects Moody’s expectations of improvements in PNB’s financial performance, in particular with regards to cost efficiency and asset quality, which will likely bring its credit profile closer to the industry average within one to two years,” it said.

Specifically, the rating agency said: “Post-merger, Moody’s affirms a stable outlook on PNB’s local and foreign currency deposit of Ba2 and its subordinated debt rating of Ba3, while at the same time keeping a positive outlook on PNB’s stand-alone bank financial strength rating (BFSR) of E+, which maps to a baseline credit assessment of b1.”

Based on Moody’s bank rating methodology, BSFR reflects a bank’s intrinsic financial strength relative to all other rated banks globally. These ratings are assigned from a 13-point scale ranging from A to E. In evaluating BSFR, Moody’s considers five factors:  franchise value, operating environment, risk positioning, financial fundamentals, and regulatory environment.

Moody’s noted that there would be some “manageable” challenges the surviving bank would face throughout the integration process.

“While the merger will pose some integration challenges, these difficulties are expected to be manageable given the alignment of work streams and processes that has taken place since the merger plan started being implemented in 2008,” it said.

According to Moody’s, it will make another assessment report on PNB’s performance once the consolidation is fully consummated.

“Moody’s will assess the merit of an upgrade of PNB’s BFSR once reported results fully reflect the business combination from an accounting point of view, and if the results continue to point towards the positive benefits that Moody’s expects from the merger,” it added.

“The stable outlook on PNB’s long-term ratings signals that its deposit and subordinated ratings are unlikely to be upgraded in the short-term, even if the BFSR were to be upgraded.”

Moody’s estimated that post-merger, PNB’s share of system deposits is seven percent and its share of system loans is six percent. By contrast, its share of system deposits and loans pre-merger was about four percent.

“While PNB’s systemic importance has increased, its larger share of system deposits and loans is insufficient to result in an upgrade of its long-term rating unless the bank’s BFSR is upgraded by two notches, all other assumptions remaining equal,” it said.

Before the legal merger in Feb. 9 this year, PNB and Allied Bank have total assets of $9.5 billion and $5.6 billion, respectively. Full consolidation of the two banks are expected to take place within 18-24 months.