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April 21, 2024

Moody’s cites uncertainty over UnionBank’s capital plan, maintains negative outlook

Credit rating agency Moody’s Investors Service has maintained Union Bank of the Philippines’ Baa2 ratings while tagging it with a negative ratings outlook.

According to Moody’s latest commentary on UnionBank’s ratings issued on Friday, the negative outlook persists due to lingering uncertainty over the bank’s minimum capital requirement.

The outlook remains negative because of uncertainty related to the bank’s plan to improve its core capital ratio to a level that will be commensurate with that of its domestic and regional peers,” said Moody’s.

It also said that a longer track record of improvements in net interest margin and profitability is necessary before the outlook can be returned to stable.

The “Baa2” ratings, which indicate moderate credit risk, apply to UnionBank’s long-term local and foreign currency bank deposit ratings, long-term local and foreign currency issuer ratings, and foreign currency senior unsecured ratings. The outlook on these ratings remains negative, said Moody’s.

Moody’s based its ratings, negative outlook, and BCA score on UnionBank’s “mildly improved solvency position” after its P12 billion capital increase in February this year, following a material capital decrease related to the acquisition of Citigroup retail business.

The Aboitiz family’s banking unit acquired Citi Philippines’ consumer banking business in 2022.

Moody’s also cited UnionBank’s “expectation of stabilizing asset quality due to post-pandemic economic recovery and higher core profitability in the next 1 to 2 years from cost synergies from the recent acquisition and the bank’s expansion into the higher-yielding retail loans” as factors for their current assessment of UnionBank.

While UnionBank is aiming for a higher capital ratio this year, Moody’s said the execution of this plan is subject to inherent uncertainty around profitability and asset growth.

Given the negative outlook, Moody’s said that “the bank’s ratings are unlikely to be upgraded over the next 12–18 months.