Moody's Investors Service affirmed Banco de Oro Universal Bank's (BDO) D financial strength rating with a stable outlook, and placed Equitable-PCI Bank's (EPCI) D- rating on review for possible upgrade. The two banks' constrained debt ratings of Ba3 and deposit ratings of B1 were also affirmed with stable outlooks.
These rating actions follow the recent announcements from the BDO and ECPI boards of a merger between the two organizations with BDO as the surviving entity. The merged bank will be renamed Banco de Oro--EPCI Inc. "As far as BDO is concerned, the bank will benefit from EPCI's expanded distribution network and wider product range," says Anita Cheuk, Moody's Lead Analyst for BDO and EPCI. "Moreover, if consummated, the merger will create the Philippines' second largest bank by assets with 12% market share in both the deposits and loans markets," she says.
"However, the merger will result in short-term asset quality deterioration relative to BDO's current financial profile," says Cheuk.
"Also, although in the longer term the combined institution does offer potential synergies, merger related integration may prove challenging. For instance, differences in corporate culture may result in increased staff turnover and some customer loss at the newly acquired business."
From a ratings perspective, the realization of synergies between BDO and EPCI would be viewed positively, as reflected in improved earnings, asset quality and capital. Additionally, an eventual merger that creates a larger and stronger entity - conditional on the mode of financing - could benefit ratings.
Equitable-PCI Bank is the Philippines' third largest lender. It had total assets of P320.6 billion (US$6.0 billion) as at September 30, 2006.
Banco de Oro Universal Bank is the Philippines' fifth largest bank by assets. It had total assets of P292.6 billion (US$4.4 billion) as at September 30, 2006.
