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UnionBank SRO ‘credit positive’

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PHILSTAR

FRESH CAPITAL raised by the UnionBank of the Philippines bodes well for the lender’s credit rating, Moody’s Investors Service said, noting the additional funding will support brisk lending activity.

The listed lender completed its stock rights offering (SRO) on Friday where it raised P10 billion from the issuance of new shares priced at P62.97 apiece.

In a disclosure, the Aboitiz-led bank said 158.8 million additional common shares have been listed on the Philippine Stock Exchange, which is equivalent to 15% of the bank’s outstanding shares.

“The completed rights issue is credit positive because it will boost UBP’s capital buffers well above Basel III capital rules, while supporting credit growth,” Moody’s said in a report published yesterday.

UnionBank currently holds a “Baa2” rating with a “stable” outlook from the debt watcher, one notch above minimum invest grade to match the Philippine government’s rating.

UnionBank President and Chief Executive Officer Edwin R. Bautista said the fresh capital-raising initiative saw strong demand from retail investors as well as the bank’s existing stockholders, which include sister firms Aboitiz Equity Ventures, Inc. and Insular Life Assurance Co. Ltd. as well as the Social Security System, a state-run pension fund.

UnionBank joined an industry trend for fund-raising initiatives this year ahead of higher capital and liquidity requirements that will kick in January 2019, as the Bangko Sentral ng Pilipinas keeps up with international regulatory standards that promote risk management and sound financial profiles.

According to Moody’s estimates, the latest rights offering will boost the bank’s common equity Tier 1 (CET1) ratio by 220 basis points, bringing the level of high-quality capital at par with other banks and well above the BSP’s standard.

“We expect that the capital raise will be sufficient to support credit growth of about 20% over the next three fiscal years (which end in December 2020), after which the bank’s CET1 ratio will decline to 11%-12% as the growth of risk-weighted assets outpaces the growth of retained earnings,” the debt watcher said.

After three years, UnionBank may need to raise new capital “because its internal capital generation capacity lags credit growth.”

UnionBank’s fresh fund-raising drive would likewise boost its thrust to go more digital, Moody’s said, which is seen to broaden customer reach and increase efficiency. The bank recently adopted blockchain technology to tap rural banks via an interbank information network organized by J.P. Morgan.

Shares of UnionBank closed at P66.60 apiece on Monday, down 40 centavos or 0.60%. — Melissa Luz T. Lopez