The acquisition by Union Bank of the Philippines of Citi’s consumer banking business in the Philippines is credit positive for the Aboitiz Group lender and will boost its retail business, according to the CreditSights report of Fitch Group released Tuesday.
Union Bank ranked as the 10th largest bank by size in the country with total assets of P767.7 billion and net loans of P341.5 billion as of September 2021. The total assets and gross loans of Citiʼs Philippines consumer business were P89.5 billion and P59.7 billion, respectively as of June 2021.
“UBP will be bumped up a spot to 9th place post-acquisition. In credit cards, however, growth gets significantly fast-tracked as this catapults UBP from its current 8th placing all way to Citiʼs current position of 3rd/4th,” the report said.
It said Union Bank’s present customer base of 200,000 with a transaction value of P8 billion is relatively low compared to Citiʼs one million credit cardholders worth P55 billion.
“Overall, our view is that the acquisition is credit positive in the long haul but the immediate capital impact is also significant – Citiʼs local consumer business would be a great complement to any of the smaller banks in general, as its larger scale and greater strength in the upscale consumer market and wealth management businesses would mean few overlaps with the existing retail units of the smaller banks,” the report said.
It said product expertise gave the Citi franchise a strong foothold in the retail market. “Any medium-sized bank that absorbs the Citi business stands to fast-track growth and benefit from a unit that is already capital accretive from day one. We also like that UBP is porting the whole Citi team over as this increases the likelihood of smooth running after the transaction closes,” it said.
It said success in the longer term would depend on whether management could ensure that the key aspects which made the Citi consumer franchise successful in the Philippines are not lost during the integration process, to minimize the attrition of customers acquired.
The sale of Citi’s consumer banking business to UnionBank came after an extensive auction process that also drew bids from the first-tier Philippines banks BDO Unibank Inc. of the Sy group, Metropolitan Bank & Trust Co. and the Bank of the Philippine Islands.
Included in the transaction are Citiʼs local credit card, personal loans, wealth management and retail deposit businesses as well as several of Citiʼs real estate assets in the Philippines, namely Citibank Square in Eastwood (Manila), three full-service bank branches, five wealth centers and two bank branch lites. Julito G. Rada
Union Bank will pay Citi cash consideration for the net assets of the acquired businesses, which were valued at P9.7 billion as of June 30, 2021 but subject to closing adjustments, plus a premium of P45.3 billion, taking the total consideration to P55 billion.
Both parties expect the completion of the transaction in the second half this year, subject to the timing of regulatory approvals. Union Bank expects integration of the acquired portfolio with its own businesses to be completed by mid-2023.
