Ayala-led Bank of the Philippine Islands (BPI) is now one of Asia’s best capitalized banks following the unprecedented amount of fresh cash it raised from its stock rights offering this week.
Debt watcher Moody’s Investor Service on Friday said BPI, already the country’s third largest bank, should now be able to more aggressively pursue acquisitions and the organic expansion of its business.
“The additional equity capital is credit positive for BPI because it will increase the bank’s loss-absorption capacity and boost its common equity capital well beyond (regulatory requirements),” Moody’s assistant vice president Simon Chen said.
“In addition, the additional capital will better position the bank to pursue business expansion,” he said in a commentary.
Last Tuesday, BPI successfully raised P25 billion in fresh equity capital through a stock rights offer to existing shareholders. BPI’s stock rights issuance was 1.3-times oversubscribed, reflecting strong support from its shareholders, particularly Ayala Corp., one of the country’s largest conglomerates.
The transaction comes shortly after regulators imposed stricter capitalization requirements for local banks, in line with international Basel III rules.
According to Moody’s, the additional capital should improve BPI’s capital base, resulting in a hike in the company’s tier 1 capital ratio to 18.6 percent of its risk-weighted assets from 14.7 percent in the third quarter of 2013.
“This will make BPI among the best capitalized banks in the Philippines and Asia-Pacific,” Chen said.
“The higher capital level is also well above the Basel III minimum of 8.5 percent, including a capital conservation buffer for the Philippine banks,” he added.
BPI’s tier 1 capital, based on Moody’s estimate, compares to the industry’s consolidated capital adequacy ratio (CAR) of 19.24 percent at the end of June last year.
The industry’s CAR level includes lower-level tier 2 capital, which shares characteristics with debt securities.
A bank’s CAR serves as its buffer from losses from potential defaults from borrowers.
Moody’s noted that BPI had until the end of last year been in talks to acquire Philippine National Bank (PNB), the country’s fifth-largest lender, but the talks ended last year.
In that instance, Moody’s said its estimates showed BPI’s capital ratio would have declined by 3.5 percentage points, assuming that the acquisition had been paid for using a 50-50 mix of cash and newly issued equity.
“After the failed acquisition of PNB, BPI has continued to be vocal about its intentions on further expansions, both domestically and regionally,” Moody’s said.