Robinsons Bank and BPI Merger

October 27, 2022

Robinsons Bank and BPI Merger

Banking is a “scale game,” according to JG Summit President and CEO Lance Gokongwei, and combining it with Ayala’s BPI can help Robinsons Bank succeed.

Although the planned merger of Robinsons Bank Corporation (RBC) with Bank of the Philippine Islands (BPI, BBB-/Negative/bb+) will expand BPI’s reach, it is unlikely to have an impact on the bank’s support-driven credit ratings. Given the decent financial profile and relatively small scale of the acquired firm, BPI can manage the short-term financial effects of the merger.

According to a share-swap agreement, BPI will survive, with current RBC shareholders owning about 6% of the combined company. Under the condition that shareholder and regulatory clearances are received, the transaction is expected to close by the end of 2023.

The merger shouldn’t have a significant impact on BPI’s standalone credit profile, according to us. Although the asset quality of RBC is lower than that of BPI, we predict that the acquired non-performing loans (NPLs) would only slightly boost BPI’s NPL ratio—by around 0.2 percentage points—since RBC’s total balance sheet only accounts for 7% of BPI. BPI’s strong loan-loss buffers can easily absorb any additional credit fees.

When compared to BPI’s 15.9% common equity Tier 1 ratio at the end of June 2022, RBC’s capitalization is likewise strong, which should keep the decline in the merged entity’s capital ratio to under 0.2 percentage points. RBC is also unlikely to significantly impact BPI’s risk-adjusted profitability indicators because, despite being less profitable than BPI, the bank is nonetheless profitably in line with industry standards.

With its market share expected to rise by roughly 0.9pp, we think the merger could solidify BPI’s position as one of the biggest privately owned banks in the Philippines. Beyond acquiring the clientele and more than 150 branches of RBC, BPI should gain improved access to new customers from the Gokongwei Group, one of the biggest conglomerates in the Philippines and the major shareholder of RBC. This is due to the group’s extensive business operations throughout the nation.

A 20% share in GoTyme Bank, a joint venture involving RBC, Gokongwei Group, and Singapore-based GoTyme, would also be acquired by BPI. We think that the extra platform would assist the bank in expanding its retail products and reaching out to new, underserved clients in the Philippines, even those who might be at a higher risk.

The additional credit risks resulting from BPI’s expansion into underbanked markets will depend on its strategy and risk management practices, both of which we anticipate to stay fairly controlled. Additionally, we think that in the near future, the speed of BPI’s loan growth would be muted by rising interest rates and deteriorating business and consumer sentiment.

However, the expanded franchise will highlight BPI’s systemic significance, which is a major factor in its Issuer Default Ratings, which are influenced by support (IDRs). Given that our assessment of the state’s tendency to assist BPI is unchanged, any changes to the sovereign rating or Outlook are expected to have a comparable effect on the bank’s IDRs. The IDRs are now on a Negative Outlook, in accordance with the Outlook on the Philippine sovereign.