Merger with Robinsons Bank to enhance BPI – Fitch

MANILA, Philippines — The planned merger with Gokongwei-owned Robinsons Bank Corp. (RBC) may further enhance the market position of Ayala-led Bank of the Philippine Islands (BPI), according to Fitch Ratings.

In a report, Fitch Ratings director Tamma Febrian said the planned merger would 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 point.

“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,” Febrian said.

The shareholders of RBC, JG Summit Capital Services Corp. and Robinsons Retail Holdings Inc., will collectively hold approximately six percent of the resulting capital stock of BPI after the completion of the merger before the end of 2023.

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

Febrian said the merger would not affect BPI’s standalone credit profile.

“RBC’s asset quality is weaker than that of BPI, but we estimate that the acquired non-performing loans would increase BPI’s non performing loan ratio by only about 0.2 percentage point as RBC’s total balance sheet is just seven percent of that of BPI,” Febrian said.

According to Fitch, BPI’s healthy loan-loss buffers can comfortably absorb any incremental credit charges.

Even prior to the consolidation, latest data from the Bangko Sentral ng Pilipinas (BSP) showed that BPI has already emerged as the country’s second largest private bank in terms of assets with P2.41 trillion as of end-June, second to Sy-led BDO Unibank with P3.66 trillion.

Ty-led Metropolitan Bank & Trust Co. (Metrobank) ranked third with P2.35 trillion, followed by Philippine National Bank of tobacco and airline magnate Lucio Tan with P1.19 trillion, Sy-led China Bank with P1.12 trillion, and Yuchengco-owned Rizal Commercial Banking Corp. with P1.03 trillion.

BPI also ranked second in terms of capitalization with P302.99 billion after BDO’s P431.37 billion, as well as in terms of deposits with P1.98 trillion, next to BDO’s P2.87 trillion.

With the planned merger, Fitch said that BPI would also gain a 20 percent stake in GoTyme Bank, the digital bank joint venture 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,” Febrian said.

As of end-June, RBC ranked 16th with total assets of P175.9 billion, including net loans and receivables of P102.4 billion, and total liabilities of P156 billion, including deposits of P139 billion.

“RBC’s capitalization is also healthy, reflected in its common equity Tier 1 ratio of 14.2 percent at end-June 2022 compared with BPI’s 15.9 percent, which should limit the decline in the merged entity’s capital ratio to less than 0.2 percentage point,” Febrian said.

Furthermore, he said 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.

The debt watcher believes higher interest rates and softening business and consumer sentiments are likely to temper BPI’s loan growth momentum in the near term.

Data from the central bank showed the 171-year-old bank ranked second in terms of total loans and receivables with P1.59 trillion as of end-June, next to BDO’s P2.44 trillion.