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May 27, 2024

Moodys affirms Unionbank ratings,but profitability, NPLs remain key hurdles

Moody’s Investors Service affirmed UnionBank of the Philippines’ investment-grade ratings, citing concerns about a surge in bad loans and slipping profitability.

UBP’s non-performing loans (NPLs) rose to 6.5 percent in 2023, driven by issues in the commercial sector and weaknesses in its digital arm, UnionDigital Bank.

Moody’s expects NPLs to stay elevated at 5-6% percent for the next year and a half.

Profitability also took a hit, with return on average assets dipping to 0.8 percent in 2023 due to higher costs.

While core profitability improved, Moody’s wants to see tighter credit management and cost controls for sustainable growth.

UBP’s planned expansion and increased exposure to riskier loans are seen as potential drags on future profitability. Additionally, its capital buffers are lower compared to peers.

The path to a stable outlook hinges on UBP demonstrating improvements in asset quality, core profitability, and capital ratios. Until then, the negative outlook remains in place.