Moody’s smiles on BPI-PNB merger

Merged bank will become Philippines’ largest with assets of US$29 billion.

Moody's Investor Service said the merger of Bank of the Philippine Islands (BPI) and Philippine National Bank (PNB) will create a stronger entity and be credit positive for both banks.

"BPI’s acquisition of PNB is credit positive for PNB and ABC (Allied Banking Corporation) because BPI is fundamentally stronger than the other two banks, and as such will be able to improve their credit profiles," it said.

Moody’s said talks are ongoing since PNB is in the process of merging with Allied Banking Corporation, which is awaiting regulatory approval of the merger.

“If BPI succeeds in buying the PNB stake and the PNB-ABC merger receives regulatory approval, we expect PNB and ABC to merge with BPI," it said.

Moody's, however, said PNB and Allied Bank’s current position in the banking industry could diminish BPI's outstanding performance.

It said PNB and ABC ranks lowly among its rated Philippine banks in key credit performance measures despite improvements over the past three years. Both maintain substantial legacy bad loans that continue to weigh on their asset quality.

Both also exhibit high credit risk concentration n large borrowers relative to their core capital base, which exposes them to significant credit losses. Corporate governance at both banks is also flawed since both boards of directors are dominated by Lucio Tan.