The Philippine growth story is attracting Japanese companies and other foreign investors. But when one of the world’s biggest lenders decides to put a significant investment in a Philippine bank, one can expect it to be a long-term engagement.
Bank of Tokyo-Mitsubishi UFJ Ltd., Japan’s largest bank, last week agreed to buy 20 percent of Security Bank Corp. for $782 million, or P36.9 billion. The transaction by far is the largest equity investment in the country’s financial system by a foreign institution. It topped the Philippine investment of Cathay Life Insurance Corp. of Taiwan, which infused P17.9 billion for a 20-percent stake in Rizal Commercial Banking Corp. in April last year.
Standard & Poor’s Rating Services quickly reacted to the deal. It revised the credit outlook for Security Bank from stable to positive and affirmed its ‘BB+’ long-term and ‘B’ short-term issuer credit ratings on the local bank.
“The outlook revision reflects SBC’s improved capital position after Bank of Tokyo-Mitsubishi UFJ Ltd. acquired a 20-percent stake in the bank… The deal will increase SBC’s capital by P36.9 billion on a pro-forma basis from P52.4 billion as of Sept. 30, 2015,” S&P said.
The Japanese bank, known as BTMU, is a member of Mitsubishi UFJ Financial Group Inc., one of the world’s leading financial groups with total assets of $2.4 trillion as of March 31, 2015.
Security Bank clearly will benefit from the foreign equity infusion in support of its ambition to be among the top four or five banks in the Philippines against the backdrop of a resurgent economy.
The bank’s goal, while daunting, will require bold initiatives. Security Bank officials say the lender must build retail banking as the third business pillar alongside wholesale banking and financial markets. It will have to accelerate branch network expansion to support retail, middle market and penetration of the small and medium enterprises. The goal to become the fourth or fifth largest bank will also require 500 to 600 branches by 2020 in deposit-rich, high-business markets.
Rapid growth eyed
Security Bank plans to use the additional capital to pursue more rapid growth, especially in the retail sector to complement strengths in corporate and wholesale banking. But S&P is wary of the plan.
“We believe the bank’s retail growth plans are ambitious… In our opinion, the retail sector offers higher yields, but also presents greater delinquency risks, which could lead to an increase in the bank’s credit costs. Rapid use of capital combined with incremental operating costs could gradually reduce SBC’s enhanced capital ratios over the next 18 to 24 months. We continue to assess SBC’s capital position as adequate,” S&P said.
The credit rating agency said the alliance with BTMU would enhance Security Bank’s products suite, collaboration opportunities and global banking know-how and help accelerate the bank’s growth strategy in Philippines.
“We could raise the ratings on SBC if its Standard & Poor’s risk adjusted capital ratio sustains above 10 percent in the next 18 to 24 months despite the growth plans,” the rating agency said.
BTMU, though, is bullish despite the 81-percent premium on Security Bank’s closing price of P135 when the transaction was announced last week.
“People say that it’s expensive, but we believe this is the right price,” Go Watanabe, the managing executive officer and chief executive for Asia-Oceania at MUFG’s main lending unit, said. “We believe this price is fair, calculating the intrinsic or future value of the bank. Asean market is our second core market after Japan. So we would like to expand our business here, so Asean is very important.”
Security Bank chairman Alberto Villarosa, meanwhile, assured the Dy family, which had been the bank’s majority shareholders for years, would remain the controlling shareholder of the bank. He said the additional capital infusion from BTMU would be largely allocated to pursue the bank’s growth and strategies. Total foreign ownership of Security Bank climbed to 35 percent, still below the 40-percent limit under the law.
“This is a testament to Security Bank’s reputation. We welcome the entry of BTMU as a shareholder and business partner. This partnership is an appropriate fit for Security Bank to deliver our promise of better banking,” Villarosa said.
E-mail: rayenano@yahoo.com or busines@thestandard.com.ph or extrastory2000@gmail.com