Acquiring Citibank unit seen to bode well for Unionbank

This photo courtesy of Unionbank shows a façade of its building.

UNION Bank of the Philippines’s acquisition of the consumer banking arm of Citi Philippines will bode well for the local lender’s short and long term prospects, an international research firm said.

CreditSights said the move is a “meaningful acquisition for a bank the size of Unionbank” and would not have been made possible if not for the strong corporate backing of the bank via the Aboitiz Group.

The think tank, which was acquired by the Fitch Group, also said their internal calculations showed that Unionbank’s acquisition of Citi will take the bank’s common equity tier (CET) 1 ratio down to approximately 13.5 percent.

“While capital levels almost certainly will not fall below regulatory minimums as that would mean not getting the blessing of regulators, the acquisition looks set to leave the bank with a relatively thin capital buffer post-transaction, even with the large support from its shareholder group,” the think tank said.

On the other hand, Unionbank is set to get a significant leg-up in retail. The think tank approximates that the local bank will be bumped to the 9th-biggest bank in the country-post acquisition from its current 10th place.

In credit cards, however, Unionbank is expected to jump from its current 8th placing all the way to Citi’s current position of third or fourth.

“In the near term, the capital impact of the acquisition is significant and likely to result in a relatively thin buffer, especially in the current uncertain operating environment. That said, UBP has been a consistently profitable banking franchise that has delivered above peer returns to its shareholders, and the recent strong backing that it has secured for this acquisition signals to us that more capital injections could be forthcoming if required in the near-term,” CreditSights said.

“Retail asset quality however, especially unsecured exposures, will continue to be volatile as emerging virus variants will continue to pose uncertainties in 2022,” it added.

Both parties expect completion of the transaction to be in the second half of 2022, subject to the timing of regulatory approvals.

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