Moody’s revises UnionBank outlook to negative after P55B deal with Citi

Moody’s revises UnionBank outlook to negative after P55B deal with Citi

Moody’s has downgraded Union Bank of the Philippines’ outlook from stable to negative following the Aboitiz lender’s announcement of its acquisition of Citi’s retail banking business in the country.

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In a statement, Moody’s said the deal could put a strain Union Bank’s capital buffers amid heightened asset risks due to the ongoing pandemic.

“The acquisition will reduce UnionBank’s capital, and the bank will take multiple years to rebuild its capital buffer,” the credit rating agency said.

READ: UnionBank’s P55B acquisition of Citi’s retail business credit positive – CreditSights Analytics

Moody’s sees UnionBank’s tangible common equity (TCE) to adjusted risk-weighted assets ratio declining to around 13 percent from 15.3 percent in 2020.

“Although the acquisition will improve UnionBank’s core profitability due to an increase in the share of higher-yielding retail loans, the extent and sustainability of the potential earnings boost from this acquisition are highly dependent on a successful post-acquisition retention of Citigroup’s clients and synergy realization, both of which are uncertain at this point,” it said.

READ: Game changer: Erramon Aboitiz raising P40B from rights offering to bankroll UnionBank’s purchase of Citibank’s consumer assets in PH

UnionBank’s gross non-performing loan (NPL) ratio increased significantly to 4.9 percent in end September last year from 3.3 percent in 2019 as asset risks remained elevated due to disruptions caused by the global health crisis.

Despite the negative outlook, Moody’s affirmed the Baa2 long-term local and foreign currency bank deposit and senior unsecured ratings of UnionBank.

READ: Is it worth it? Aboitizes shell out P45B premium just to make sure UnionBank beats Sy-blings, Ty-blings, Ayalas for prized Citi assets


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