PNB maps out 5-year growth plan, shelves merger talks with BPI for now

Lucio Tan FILE PHOTO

MANILA, Philippines–Tycoon Lucio Tan-led Philippine National Bank is shelving merger talks with Bank of the Philippine Islands until such time – likely in the next three to four years – that it has become a “bigger, better and stronger” bank that could enter into a merger of equals with leading banks.

The merger with affiliate Allied Bank Corp., however, has been fleshed out and the full integration is expected to be completed in two years at a cost of about P1.5 billion.

“Even with this inevitable cost, and with the revenue enhancements arising from the merger synergies and the recently crafted five-year strategic plan for the merged bank, we look forward to strengthening further our profitability position, translating into an ROE (return on equity) in the vicinity of 13-15 percent in the next three years,” PNB president Omar Mier said during the bank’s stockholders meeting on Tuesday.

“Talks with BPI have died for the moment and the reason why deal didn’t push through is that we were at a disadvantage in terms of price-to-book,” he said during a media briefing after the stockholders’ meeting.

Based on earlier reports, the previous merger and acquisition (M&A) framework would have allowed BPI to take over PNB at a price-to-book value of about 1.6x.  BPI, the most valuable bank, has been trading at over three times its book value.

Mier said PNB would have to grow to such a level that its valuation would be comparable with the other big banks.  He said PNB could take a look at M&A options “when we are equals with other banks” which he said would be three to four years down the line.

Under the bank’s five-year strategy, PNB has set as guidance a compounded annual growth rate (CAGR) of at least 15 percent which would effectively double its net profit in five years, Mier said.  Likewise part of the plan is to grow its loan book by an average CAGR of 18 percent for the next five years.

But among the immediate initiatives of the PNB for 2013, which is on its first year of merger with Allied Bank, is to refinance P10.5 billion worth of maturing tier 2 debt notes through the issuance of long-term negotiable certificates of deposits (LTNCDs).

He said PNB was only awaiting approval from the Bangko Sentral ng Pilipinas to issue an initial batch of LNTCDs worth P5 billion and after that, the bank would like to issue another P5 billion to refinance the remaining portion.