“The issue rating for Philippine Savings Bank’s (PSBank) proposed P2.0 billion Tier-2 issue is PRS Aa plus,” PhilRatings announced. A rating of PRS Aa means that the bank has a strong capability to pay its debt issue.
The Unsecured Subordinated Debt (USD) or Tier-2 issue will have a maximum term of ten years, with a call provision after 5 years.
Effective December 2005, PhilRatings is applying the practice of adding to a rating a plus (+) or a minus (-) sign to modify the rating to indicate the relative position of an issue in a particular rating category. Heretofore, this modification, was only applied to issuer ratings.
In assigning the rating, PhilRatings considered PSBank’s market position as one of the leading players in the attractive consumer banking sector, solid support from parent Metropolitan Bank & Trust Co. (Metrobank) and synergies realized from being part of the Metrobank Group, and management’s focused vision and coherent strategy. PhilRatings likewise took into account PSBank’s strong core earnings, its good asset quality, sound funding base, and acceptable capitalization level. Other significant rating factors include: keen competition in the industry, particularly in the light of still tepid loan growth in the corporate sector, leading other banks to also focus on the consumer banking segment; potential asset quality deterioration risks resulting from the relatively aggressive growth in the bank’s portfolio; and prevailing market and economic conditions (e.g. higher fuel prices, implementation of the E-VAT law) which may affect consumer purchasing power in the short to medium-term and which inevitably impacts the capability of PSBank’s market to meet payments on its existing obligations or to take on additional loans.
PSBank, established in 1960, is one of the thrift banks in the country. As the retail banking subsidiary of Metrobank, the bank’s focus is on retail deposit-taking and consumer lending to the upper and middle-income classes. With assets of P52.6 billion as of June 2005, PSBank is the second largest among the 90 thrift banks in the country. The bank accounts for about 16% of the thrift banking sector’s total assets, about 16% of total loans, 19% of total deposits, and 11% of total capital. It presently has 150 branches, with about 93 branches located in the National Capital Region. Parent company Metrobank is the largest domestic bank in the country in terms of asset size and branch network. Metrobank has a 74.2% shareholding in PSBank. Being part of the Metrobank Group benefits PSBank in terms of branch expansion; and access to interbank facilities, customer data infrastructure and credit card operations by way of Metro Card Corporation, among others. Metrobank and PSBank serve distinct core markets, with the two banks coordinating heavily on market segmentation and branch locations to reduce overlapping service areas.
PSBank’s asset quality profile is adequate, considering the bank’s level of bad loans, the amount of loss reserves on non-performing loans (NPLs), and the diversification of its loan book. The bank showed significant improvement in its ratio of non-performing assets (NPAs) to total loans, with the ratio at 12.63% as of September 2005 compared to 2002’s 19%. As of June 2005, the thrift bank sector average was at 22.6%.
Net income for the first nine months of 2005 was P429 million. Further revenue and earnings growth are expected going forward on account of a wider distribution infrastructure and improvements likewise in the bank’s funding base.
Return on assets (ROA) before loss provisions and taxes, averaged 1.17% in the last five years, higher than the thrift banking sector’s 0% ROA in 2003-2004. Net interest margin was significant at 5.83% as of September 2005. The bank’s capital to risk assets ratio (CAR) is at 13.6%, exceeding the minimum 10% ratio required by present banking regulations though lower than the industry’s average of 18% as of March 2005. PSBank intends to issue up to P2.0 billion in unsecured subordinated notes in the short-term and this is estimated to improve its CAR to 17%.
PSBank’s funding profile is supported by very healthy deposit generation. Deposit volumes have increased steadily in the past five years, surging by 45% in 2004. About 65% of total deposits amounting to P40.0 billion as of end-2004 , consisted of low-cost savings and demand deposits.