Moody's: New capital infusion into UCPB won’t boost rating

MANILA, Philippines The infusion of capital into the United Coconut Planters Bank (UCPB) may help in propping up the sequestered bank’s finances, but more capital is needed to boost its credit ratings, Moody’s Investor Service said. "The announced recapitalization agreement between UCPB and three government agencies (Department of Finance, Presidential Commission on Good Government and the Philippine Deposit Insurance Corp. or PDIC) should help stabilize the bank’s financial condition," Moody’s said in a statement. The plan to hike the bank’s capital involved the PDIC’s conversion of P12 billion in cash advances of the bank into special Tier 1 capital-qualifying instruments. Tier 1 capital is a bank’s core capital which is comprised of equity capital and disclosed reserves, among others. The amount was the remaining balance of the P20-billion Financial Assistance Package provided to UCPB in 2003 by the PDIC. But while the Tier 1 instruments are not common shares that convey ownership rights to their holders, approval by the BSP will allow the PDIC to convert the instruments into preferred shares that can become into common equity. The Finance department has also provided support to UCPB by pledging to maintain at least P25 billion in deposits, which can only be invested in government securities. The agreement points to the bank’s continuing reliance on government support, consistent with an "E" bank financial strength rating, Moody’s said. Richard Lung, vice-president and senior analyst at Moody’s, said the bank’s inability to raise capital due to disputes over its ownership has long served as a constraint on its ratings. Moody’s gave UCPB a bank financial strength rating (BFSR) of E and foreign currency deposit ratings of B1/Not-Prime. The outlook for all ratings is stable. The bank’s BFSR indicates a "very modest intrinsic financial strength" with a higher probability for eventual need for external support, while its foreign currency deposit ratings translate to generally poor credit quality. "While P12 billion in new capital is a good step towards the bank’s rehabilitation, more capital will be needed for positive pressure to develop on UCPB’s ratings," Mr. Lung said. Moody’s noted that UCPB used to be the sixth largest bank in the country with 4.9% of total commercial bank assets in 1985. However, it fell to No. 15 with only 2.3% of assets of the commercial banking sector after the government sequestered about 70% of its shares 20 years ago. — G. S. dela Peña, BusinessWorld